Q1 2025 Semtech Corporation Earnings Call
Operator: Greetings. Welcome to Semtech's Q1 FY25 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mark Lin. You may begin.
Greetings and welcome to Centex Q1, FY 'twenty five earnings call at this time, all participants are in a listen only mode.
Speaker Change: NASA session will follow the formal presentation.
Speaker Change: Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded.
Speaker Change: Now I'll turn the conference over to your house.
Speaker Change: Marketing you may begin.
Mark Lin: Thank you, Operator. Good day, everyone, and welcome.
Speaker Change: Thank you operator, good day, everyone and welcome. This is Mark Lynn Executive Vice President and Chief Financial Officer, and I'm joined today by Paul Pickle, President and Chief Executive Officer.
Mark Lin: This is Mark Lin, Executive Vice President and Chief Financial Officer, and I'm joined today by Paul Pickle, President and Chief Executive Officer. Today, after market close, we released our unaudited results for the first quarter of fiscal year 2025, which are posted along with an earnings call presentation on our investor website at investors.semtech.com. Today's call will include various remarks about future expectations, plans, and prospects, which comprise four booking statements. However, actual results may differ materially from the results anticipated in these statements due to various factors included in today's press release and presentation, as well as in the risk factors section of our annual report on Form 10-K for the year ended January 28, 2024, filed with the Securities and Exchange Commission.
Today after market close we released our unaudited results for the first quarter of fiscal year 2025, which are posted it along with an earnings call presentation to our investor website at investors some tech dot com.
Speaker Change: Today's call will include various remarks about future expectations plans and prospects, which comprise forward looking statements actual results may differ materially from the results anticipated in these statements due to various factors included in today's press release and presentation as well as in the risk factors section of our annual report on Form 10-K for the year ended.
Speaker Change: January 28, 2024 filed with the Securities and Exchange Commission.
Mark Lin: As a reminder, comments made on today's call are current only as of today, and Semtech undertakes no obligation to update the information from this call should facts or circumstances change. Unless otherwise noted, all income statement-related financial measures will be non-GAAP other than sales. Please refer to today's press release and presentation materials posted in the investor relations section of our website for information regarding our non-GAAP financial results and a reconciliation of our GAAP and non-GAAP financial measures. With that, I'll turn the call over to Paul to discuss our business and end market.
Speaker Change: As a reminder comments made on today's call are current only as of today and some tech undertakes no obligation to update the information from this call should facts or circumstances change.
Speaker Change: Unless otherwise noted all income statement related to financial measures will be non-GAAP other than net sales. Please refer to today's press release and presentation materials posted to the Investor Relations section of our website for information regarding our non-GAAP financial results and a reconciliation of our GAAP and non-GAAP financial measures.
Speaker Change: With that I'll turn the call over to Paul to discuss our business and end markets.
Paul H. Pickle: Thank you, Mark. I'm pleased with Semtech's solid first quarter financial performance, with net sales above the high end of guidance, along with meaningful declines in channel inventories across each of our end markets. Now, moving to our first quarter end market results, starting with infrastructure. For the first quarter, infrastructure net sales were $56 million, a sequential increase of 42% and up 44% year over year. Results were at or above our expectations across each application. POS trajectory was similarly encouraging, up 33% sequentially and up 80% year over year. Channel inventories have largely normalized and are down 8% sequentially and down 18% year over year.
Paul H. Pickle: Thank you Mark I'm pleased with some texts solid first quarter financial performance with net sales above the high end of guidance along with meaningful declines in channel inventories across each of our end markets now moving to our first quarter end market results starting with infrastructure for.
Paul H. Pickle: For the first quarter infrastructure net sales were $56 million, a sequential increase of 42% and up 44% year over year.
Paul H. Pickle: Results were at or above our expectations across each application.
Paul H. Pickle: U S trajectory with similarly, encouraging up 33% sequentially and up 80% year over year.
Paul H. Pickle: Channel inventories have largely normalized and are down 8% sequentially and down 18% year over year.
Paul H. Pickle: Net sales for Data Center were $21.2 million, up 20% sequentially, and up 61% year-over-year. In hyperscale data center applications, net sales more than doubled over last year, with powerful secular trends and AI continuing to support our copper and optical portfolio. We believe AI is a trailblazer that facilitates the accelerated adoption of leading-edge technologies such as active copper cables, linear pluggable optics, and 1.6T optical modules in general compute
Paul H. Pickle: Net sales for data center were $21 2 million up 20% sequentially and up 61% year over year.
Paul H. Pickle: And Hyperscale data center applications net sales more than doubled over last year with powerful secular trends and are continuing to support our copper and optical portfolios.
Paul H. Pickle: We believe AI as the trailblazer, which facilitates accelerated adoption of leading edge technologies, such as active copper cables linear applicable optics and 160 optical modules in general compute applications.
Paul H. Pickle: For our Copper Edge linear re-drivers, our expectations for timing and market opportunity for 1.6T active copper cables remain consistent with last quarter. We are closely collaborating in the qualification process, which is largely progressing as planned. While qualifications are currently ongoing, cable suppliers have received purchase orders for designs specifying our chips, which we believe to be a good indication of progress. Accordingly, we reiterate our expectations for shipments beginning for these designs at the end of fiscal 25, with a substantive ramp starting in FY26.
Paul H. Pickle: For our copper edge linear re drivers or expectations for timing and market opportunity and one point 60 active copper cables remained consistent with last quarter.
Paul H. Pickle: We are closely collaborating in the qualification process, which is largely progressing to plan well.
Paul H. Pickle: While qualifications are currently ongoing cable suppliers have received purchase orders for design specifying our chips, which we believe to be a good indication of progress.
Paul H. Pickle: Accordingly, we reiterate our expectation for shipments beginning for these designs at the end of fiscal 'twenty five.
Paul H. Pickle: With a substantive ramps starting in FY 'twenty six.
Paul H. Pickle: We remain very excited by ACC opportunities and are also constructively engaged on a host of key projects assisting vendors, ranging from retimed 50 gigabit solutions for AI and general compute applications, which we expect to substantially contribute to current year net sales, to retimed 100-gig solutions, which we expect to ramp this year, and retimed 200-gig solutions, which we expect to ramp starting in FY26. We believe these opportunities equate to a very rewarding market over the next few years. Fiber edge TIAs and laser drivers for 400 gigabit and 800 gigabit optical modules continued to ramp in the first quarter. We also have fiber edge design opportunities for 1.6D optical modules, with sampling expected in early FY26 and a ramp starting in the second half of FY26.
Paul H. Pickle: We remain very excited by ACC opportunities and are also constructively engaged on a host of key projects that system vendors ranging from re times 50 gig solutions for AI.
Paul H. Pickle: General compute applications, which we expect to substantially contribute to current year net sales.
Paul H. Pickle: To re timed 100 gig solutions, which we expect to ramp this year and retired 200 gig solutions, which we expect to ramp starting in FY 'twenty six.
Paul H. Pickle: We believe these opportunities equate to a very rewarding market over the next few years fiber.
Paul H. Pickle: Fiber edge T I as in laser drivers for 400 gig 800 gig optical modules continued to ramp in the first quarter.
We also have fiber edge design opportunities for 160, <unk> optical modules with sampling expected in early FY 'twenty six and a ramp starting in the second half of FY 'twenty six.
Paul H. Pickle: DesignWin activity and bookings increased across a number of customers, and we are also pleased with multiple 100 gigabit per lane DesignWins with Tier 1 and Tier 2 customers. We expect growth in this application to continue in the second quarter. Our tri-edge products are also performing well, with strong demand from key hyperscalers for 50 gigabit PAM-4 and 200 gigabit and 400 gigabit AOCs for AI and cloud applications. Our 50 gigabit tri-edge products, offering lower power and cost, have consistently maintained strong share versus DSPs.
Paul H. Pickle: Design win activity and bookings increased across the number of customers and we are also pleased with multiple 100 gig per lane design wins with tier one and tier two customers.
Paul H. Pickle: We expect growth in this application to continue in the second quarter.
Paul H. Pickle: Our Tri edge products are also performing well with strong demand from key Hyperscale is for 50 gig Pam four and 200 gig and 400 gig a O sees for AI and cloud applications.
Paul H. Pickle: Our 50 gig tri edge products offering lower power and cost have consistently maintained strong share versus D. S piece.
Paul H. Pickle: In LPO, we remain engaged with several key partners in accelerating the adoption of this technology. Net sales for Passive Optical Network products were above our expectations at $27.2 million for the first quarter, a sequential increase of 88% and a year-over-year increase of 64%. The drivers of this strong result are consistent with what we communicated last quarter following the release of tenders. Robust demand for our XG Pond and XGS Pond reflect our first-to-market position, technical leadership, and superior product performance.
Paul H. Pickle: And L. P O. We remain engaged with several key partners in accelerating adoption of this technology.
Paul H. Pickle: Net sales for passive optical network products were above our expectations at $27 2 million for the first quarter.
A sequential increase of 88% in a year over year increase of 64%.
Paul H. Pickle: The drivers of the strong results are consistent with what we communicated last quarter. Following the release of tenders robust demand for our X gene PON and Xg S pond reflect our first to market position technical leadership and superior product performance.
Paul H. Pickle: Expected market drivers in the North American and EMEA markets are consistent with the prior quarter, and we are pleased with our continued engagement with several large network providers in both 10 gigabit and 50 gigabit applications. As there was a bit of a pent-up demand reflected in Q1, we expect net sales of PON to moderate in Q2. That said, based on our current analysis of booking POS trends, we expect solid results for PON throughout the year. Regarding other products in the infrastructure and market, wireless demand has been consistent but at low levels.
Paul H. Pickle: Expected market drivers in the North American and EMEA markets are consistent with prior quarter. We are pleased with our continued engagement with several large network providers in both 10 gig and 50 gig applications.
As there was a bit of a pent up demand reflected in Q1, we expect net sales upon to moderate in Q2 that said based on our current analysis of booking P. O S trends.
Paul H. Pickle: We expect solid results for PON throughout the year.
Paul H. Pickle: Regarding other products in the infrastructure end market wireless demand has been consistent but at low levels.
Paul H. Pickle: That said, we are well positioned to lead 5G advanced front-haul deployments with our Tri-Edge and FiberEdge 50G wireless platforms and through our active participation in the Mobile Optical Plugables Alliance, which includes our key partners Ericsson and Nokia. Our 50 gigabit front hall systems are in qualification, and we expect initial sales in the latter half of FY25 for these products and production ramp in FY26. For the first quarter, high-end consumer net sales were $34.5 million, a sequential increase of 8% and up 60% year-over-year. POS was seasonally flat quarter-over-quarter and up 24% year-over-year.
Paul H. Pickle: That said, we are well positioned to lead.
Paul H. Pickle: <unk> advanced front haul deployments with our Tri edge and fiber edge 50 gig wireless platform and through our active participation in the mobile optical plug a bulls clients, which includes our key partners Ericsson and Nokia.
Paul H. Pickle: Our 50 gig front haul systems are in qualification and we expect initial sales in the latter half of FY 'twenty five for these products and production ramp in FY 'twenty six.
Speaker Change: For the first quarter high end consumer net sales were $34 5 million, a sequential increase of 8% and up 60% year over year P. O S with seasonally flat quarter over quarter and up 24% year over year.
Paul H. Pickle: Consistent with our expectations, channel inventories continue to improve, down 11% sequentially and down 22% year over year. Net sales and consumer TVS grew within expectations to $24.9 million, up 20% sequentially and up 108% year over year, paired with channel inventory declines. We believe our market share at several leading consumer products companies continued to grow with design wins including handsets, wearables, and tablets. Our performance has been driven by customer preference for our first-of-the-market, high-performance protection devices.
Speaker Change: Consistent with our expectations general inventories continued to improve down 11% sequentially and.
Speaker Change: And down 22% year over year net sales in consumer T. V. S grew with an expectation to $24 9 million up 20% sequentially and up 108% year over year.
Speaker Change: And paired with channel inventory declined.
Speaker Change: We believe our market share at several leading consumer products companies continued to grow with design wins, including handsets Wearables and tablets.
Speaker Change: Our performance has been driven by customer preference of our first to market high performance protection devices.
Paul H. Pickle: Our demonstrated capabilities to reliably deliver to customer demand, while maintaining extremely high levels of quality, have enabled us to secure a top tier scorecard rating at our largest consumer electronic customer. We expect these capabilities, along with market-leading innovation, to allow us to meaningfully outperform market growth. We also continue to extend the frontiers of our capabilities through the deployment of innovative power management solutions that effectively combine over-voltage, over-current, over-temperature, and surge protection with traditional IEC ESD protection.
Speaker Change: Our demonstrated capabilities to reliably deliver to customer demand, while maintaining extremely high levels of quality has enabled us to secure a top tier scorecard rating at our largest consumer electronic customer.
Speaker Change: We expect these capabilities along with market, leading innovation allow us to meaningfully outperform market growth.
Speaker Change: We also continued to extend the frontiers of our capabilities through the deployment of innovative power management solutions that effectively combine overvoltage overcurrent over temperature and surge protection with traditional I E C ESD protection.
Paul H. Pickle: We saw increased levels of interest in adoption for these products at key customers during the first quarter. Our class-leading, per se, proximity-sensing products had healthy consumption, up 19% sequentially and up 62% year-over-year. One of the consumption drivers was the rollout of specific absorption rate standards that took effect earlier this year.
Speaker Change: We saw increased levels of interest and adoption for these products that key customers during the first quarter.
Speaker Change: Our class leading per se proximity sensing products had healthy consumption up 19% sequentially and up 62% year over year. One of the consumption drivers was the rollout of specific absorption rates standards that took effect earlier this year.
Paul H. Pickle: This demand has been supplemented by Per Se design wins in several markets, covering tablets, earbuds, notebook computers, and smartphones. We expect the consumption trend to strengthen, driven by widespread adoption of features such as gesture control for earbuds and gesture-controlled smart glasses featuring bone conduction speakers. In line with our expectations, channel inventories for proximity sensing declined 26% sequentially and 5% year over year. For the first quarter, industrial net sales were $115.6 million, down 5% sequentially and within expectation.
Speaker Change: This demand has been supplemented by per se design wins in several markets.
Speaker Change: During tablets ear buds notebook computers and smartphones, we expect the consumption trend to strengthen driven by widespread adoption of features such as gesture control for ear buds and gesture controlled smart glasses, featuring bone conduction speakers.
Speaker Change: In line with our expectations channel inventories for proximity sensing declined 26% sequentially and 5% year over year.
Speaker Change: For the first quarter industrial net sales were $115 6 million down 5% sequentially and within expectations.
Paul H. Pickle: Our IoT systems business recorded first quarter net sales of $48.4 million, down 26% sequentially and down 57% year over year. Consistent with guidance, shipments for this business reflect our desire for healthier channel and end customer inventories. That said, this business is showing signs of recovery, with first quarter bookings up 47% sequentially. For our router business, bookings more than doubled, both sequentially and year-over-year. Router bookings were skewed towards our higher gross margin product, but we saw gains across all product families.
Speaker Change: Our Iot systems business recorded first quarter net sales of $48 4 million down, 26% sequentially and down 57% year over year.
Speaker Change: Consistent with guidance shipments for this business reflect our desire for healthier channel and end customer inventories that said this business is showing signs of recovery with first quarter bookings up 47% sequentially.
Speaker Change: For our router business bookings more than doubled both sequentially and year over year, better bookings were skewed towards our higher gross margin products, but.
Speaker Change: But we saw gains across all product families.
Paul H. Pickle: It continues to have a very strong launch pipeline, and bookings from the XR60, the world's smallest rugged 5G router, continue to grow. We are pleased that we completed major network operator certifications on schedule and have commenced initial XR-60 shipments for commercial programs, with second quarter shipments expected to sequentially double. XR-60 pipeline, expected to close in the current year, is also very strong, with opportunities in government applications, serving border security, public safety, and logistics. XR-60 pipeline has also broadly increased in utility, transit, and medical applications. Lastly, routers saw channel inventories decline 27% sequentially and 47% year-over-year.
Speaker Change: Continuing its very strong launch pipeline and bookings from the X are 60, the world's smallest rugged five G router continue to grow.
Speaker Change: We are pleased that we completed major network operator certifications on schedule and have commenced initial extra 60 shipments for commercial programs with second quarter shipments expected to sequentially double.
Speaker Change: XR 60 pipeline expected to close in the current year is also very strong with opportunities in government applications, serving border security public safety and logistics.
Speaker Change: <unk> benefited from passage of a U S federal budget.
Speaker Change: XR 60 pipeline has also broadly increasing utility transit and medical applications.
Speaker Change: Lastly, router, so channel inventories declined 27% sequentially and 47% year over year.
Paul H. Pickle: Bookings in our module business were up 22% sequentially, with growth driven by our 5G offerings and supported by further certifications at Global Network Operators. Module bookings were particularly focused on enterprise networking applications, mirroring market growth. Pipeline also grew across a number of IoT markets, including payment processing, Energy, and Fleet Management. We are also very pleased to have announced, along with key partners, satellite non-terrestrial network support in our LPWA modules, further advancing our position in fleet and asset tracking.
Speaker Change: Bookings in our module business were up 22% sequentially with growth driven by a five day offerings and supported by further certifications at global network operators.
Speaker Change: Module bookings were particularly focused in enterprise networking applications mirroring market growth pipeline also grew across a number of Iot markets, including payment processing.
Speaker Change: Energy and fleet management.
We are also very pleased to have announced along with key partners satellite non terrestrial network support and our L. P. W. E modules further advancing our position in fleet and asset tracking.
Paul H. Pickle: We believe the hardware business reached bedrock in the first quarter, with stability in the second quarter and growth in the second half of FY25. First quarter net sales for our connected services businesses were $24.1 million. Effectively flat quarter over quarter and within expectations for this relatively stable stream of recurring revenue. However, net sales of our RF industrial products, including lower-enabled solutions, increased 76% sequentially and 19% year-over-year. POS increased 25% sequentially and 16% year-over-year.
Speaker Change: We believe the hardware business reached bedrock in the first quarter with stability in the second quarter and growth in the second half of FY 'twenty five.
Speaker Change: First quarter net sales for our connected services businesses were $24 1 million effectively flat quarter over quarter and within expectations for this relatively stable stream of recurring revenue.
Speaker Change: Net sales of our RF industrial products, including Lora enabled solutions increased 76% sequentially and 19% year over year.
Speaker Change: Increased 25% sequentially and 16% year over year.
Paul H. Pickle: The first quarter was characterized by further strengthening of LORRA adoption in both private and public LORRA WAN networks. In addition to traditional utility use cases, we saw greater momentum for our lower-cost solutions targeting applications and connected spaces, including building maintenance and energy management. We are also seeing increased opportunities in city management and citywide smart lighting control. In order to further simplify network deployment and reduce system costs, we are pleased to have introduced two technical enablers to the market, the LoRa Relay and the LoRa Single Channel Hub.
Speaker Change: The first quarter was characterized by further strengthening of Lora adoption in both private and public Laura Lan networks.
Speaker Change: In addition to traditional utility use cases, we saw greater momentum for our Lora solutions targeting applications and connected spaces, including building maintenance and energy management.
Speaker Change: We are also seeing increased opportunities in city management and citywide smart lighting control.
Speaker Change: In order to further simplify network deployment and reduce system costs. We are pleased to have introduced two technical enablers to the market lower relay and the Lora single channel hub.
Paul H. Pickle: The hub was launched at the Embedded World Show held in April, with demos of this product being co-hosted by several Semtech partner companies. We see this product as an important enabler for the adoption of LoRa technology into smart home applications. For TBS products in this end market, we continue to focus on our strategy to leverage customer engagement and adoption of best-in-class consumer products to capture meaningful SAM. In the first quarter, bookings for these products encouragingly increased 61% sequentially with sequential net sales growth of 7%. Design Winds, Reaching Production, and the First Quarter Span applications, including the Intelligent Vehicle Cockpit and Advanced Displays, Vehicle Antenna, Medical Equipment, Industrial Power over Ethernet, and Body Worn Cameras used by First Responders.
The hub was launched at the embedded World show held in April with demos of this product being co hosted by several syntech partner companies. We see this product as an important enabler for the adoption of Lora technology into smart home applications.
Speaker Change: For T V S products in this end market, we continue to focus on our strategy to leverage customer engagement and adoption of best in class consumer products to capture meaningful Sam.
In the first quarter bookings for these products encouragingly increased 61% sequentially with sequential net sales growth of 7%.
Speaker Change: Design wins, reaching production in the first quarter span applications, including intelligent vehicle cockpits and.
Speaker Change: And advanced displays vehicle and tenor medical equipment industrial power over Ethernet and body worn cameras used by first responders.
Paul H. Pickle: Now, I'll turn the call back over to Mark.
Speaker Change: Now I'll turn the call back over to Mark.
Mark Lin: Thank you, Paul. For the first quarter, we recorded net sales of $206.1 million, up 7% sequentially and above the high end of our guidance range, with the infrastructure and market contributing to the favorable results. Coupling Net Sales and Channel Inventory by End Market and on a Sequential Basis. Infrastructure net sales were up 42%, and channel inventory was down 8%. High-end consumer net sales were up 8%, and channel inventory was down 11%. Industrial net sales were down 5%, and channel inventory was down 17%.
Mark: Thank you Paul for the first quarter, we recorded net sales of $206 $1 million up 7% sequentially and above the high end of our guidance range with the infrastructure end market contributing to the favorable result.
Mark: Coupling net sales and channel inventory by end market and on a sequential basis.
Paul H. Pickle: Infrastructure net sales were up 42% and channel inventory was down 8%.
Paul H. Pickle: High end consumer net sales were up 8% and channel inventory was down 11% industrial net sales were down 5% and channel inventory was down 17%.
Mark Lin: Gross margin was 49.8%, up 90 basis points sequentially and up 130 basis points year-over-year, reflecting favorable mix and cost-controlled overhead spending. Operating expenses were $77.4 million, and at the low end of guidance. We continue to closely evaluate spending, and on a year-over-year basis, operating expenses declined $15.3 million, or 17%. We believe current spending levels reflect a prudent level of cost control coupled with improved allocation of spending to drive near-term financial results. We are wholly committed to programs supporting customer projects.
Paul H. Pickle: Gross margin was 49, 8% up 90 basis points sequentially and up 130 basis points of year over year, reflecting favorable mix and cost control overhead spending.
Paul H. Pickle: Operating expenses were $77 $4 million and at the low end of guidance.
Paul H. Pickle: We continue to closely evaluate spending and on a year over year basis, operating expenses declined $15 $3 million or 17%.
We believe corn spending levels reflect a prudent level of cost control coupled with improved allocation of spending to drive near term financial results. We are wholly committed to programs supporting customer projects.
Mark Lin: Operating income was $25.2 million, and operating margin was 12.2%, a sequential increase of 300 basis points and a year-over-year increase of 290 basis points. Net interest expense was $20.5 million, in line with guidance. We recorded net earnings per share of $0.06 based on a diluted share count of 67.6 million shares. Adjusted EBITDA for the first quarter was $33.1 million, and the adjusted EBITDA margin was 16.1%. This compares with the fourth quarter figures of $24 million and 12.5%, and prior first quarter figures of $30.8 million and 13%.
Paul H. Pickle: Operating income was $25 $2 million and operating margin was 12, 2%.
Paul H. Pickle: The sequential increase of 300 basis points in a year over year increase of 290 basis points.
Paul H. Pickle: Net interest expense was $25 million in line with guidance.
Paul H. Pickle: We recorded net earnings per share of <unk> <unk> based on a diluted share count of $67 6 million shares.
Paul H. Pickle: Adjusted EBITDA for the first quarter was $33 $1 million and adjusted EBITDA margin was 16, 1%.
Paul H. Pickle: This compares to fourth quarter figures of $24 million, and 12, 5% and prior year first quarter figures of $30 $8 million and 13%.
Mark Lin: Moving to the balance sheet, we ended the first quarter with a cash balance of $126.8 million. Working capital changes largely corresponded to revenue and cost of goods sold. Inventories nominally increased $3.5 million, or 2% sequentially, in part to support second-order shipments and to carry a nominal amount of wafer bank, supporting active copper cable opportunities. However, inventories are down 30% year over year. Principal outstanding honor debt was $1.4 billion, unchanged from the fourth quarter, with a weighted average interest rate of 5.86%.
Paul H. Pickle: Moving to the balance sheet, we ended the first quarter with a cash balance of $126 $8 million.
Paul H. Pickle: Working capital changes largely corresponded to revenue and cost of goods sold.
Paul H. Pickle: Inventories normally increased $3 $5 million or 2% sequentially in part to support second quarter shipments and to carry a nominal amount of wafer bank supporting active copper cable opportunities.
Speaker Change: Inventories are down 30% year over year.
Speaker Change: Principal outstanding on our debt was $1 $4 billion unchanged from the fourth quarter with a weighted average interest rate of 5.86%.
Mark Lin: At the end of our first quarter, a consolidated net leverage ratio calculated in accordance with our credit facility was 9.5, and we expect to maintain compliance with our debt covenants for the next 12 months. Free cash flow for the fourth quarter was a $1.4 billion use of cash, reflective of working capital changes, and we did not draw on our revolvers.
Speaker Change: At the end of our first quarter, our consolidated net leverage ratio calculated in accordance with our credit facility was nine five and we expect to maintain compliance with our debt covenants for the next 12 months.
Speaker Change: Free cash flow for the fourth quarter was a $1 4 billion dollar use of cash reflects working capital changes and we did not draw on our revolver.
Operator: Now, turning to second quarter guidance. We currently expect net sales of $212 million, plus or minus $5 million. We continue to evaluate shipments into the channel to maximize gross margin opportunity. We expect net sales from the infrastructure and market to increase sequentially, with data center applications leading the growth. As Paul mentioned, in the first quarter, net sales of Pond were up 88% sequentially, and we expect a bit of normalization for this application.
Speaker Change: Now turning to second quarter guidance. We currently expect net sales of $212 million plus or minus $5 million.
Speaker Change: We continue to evaluate shipments into channel to maximize gross margin opportunities.
Speaker Change: We expect net sales from the infrastructure end market to increase sequentially with datacenter applications leading to growth.
Paul H. Pickle: As Paul mentioned in the first quarter net sales upon rub, 88% sequentially and we expect a bit of normalization for this application.
Paul H. Pickle: We expect net sales from the high end consumer market to be slightly up with expected seasonality benefiting this market at the end of the second quarter through Q3.
Operator: We expect net sales from the high-end consumer market to be slightly up, with expected seasonality benefiting this market at the end of the second quarter through Q3. We expect industrial net sales to be flat to slightly up, with bookings activity indicating a recovery in the second half of FY25. Based on expected product mix and net sales levels, gross margin is expected to be 50%, plus or minus 50 basis points. Operating expenses are expected to be $77.5 million, plus or minus $1 million.
Paul H. Pickle: We expect industrial net sales to be flat to slightly up with bookings activity, indicating a recovery in the second half of FY 'twenty five.
Paul H. Pickle: This unexpected product mix and that sales levels gross margin is expected to be 50% plus or minus 50 basis points.
Paul H. Pickle: Operating expenses are expected to be $77 $5 million, plus or minus $1 million.
Operator: We expect net interest expense to be $20.5 million and a non-gap tax rate of 15%. These amounts are expected to result in a net income per share of $0.09, plus or minus $0.03, and adjusted EBITDA of $36.3 million, plus or minus $2.6 million. I'd now like to turn the call back over to the operator for Q&A.
Paul H. Pickle: We expect net interest expense to be $25 million and a non-GAAP tax rate of 15%.
Paul H. Pickle: These are amounts are expected to result in a net income per share at <unk>.
Paul H. Pickle: Plus or minus <unk>, <unk>, and adjusted EBITDA of $36 $3 million, plus or minus $2.6 million.
Speaker Change: I'd now like to turn the call back over to the operator for Q&A.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: We will be conducting a question and answer session.
I'd like to ask a question. Please press star one on your telephone keypad a.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Speaker Change: He's the speaker equipment, it may be necessary to pick up your handset before pressing starkey.
Speaker Change: Questions.
Speaker Change: Yes.
Speaker Change: Our first question comes from the line of harsh Kumar with Piper Sandler.
Speaker Change: Please proceed with your question.
Harsh V. Kumar: Yeah, hey guys. First of all, congratulations on what appears to be a pretty good turnaround that you've instituted already.
Harsh V. Kumar: Yeah, Hey, guys first of all congratulations on what appears to be a pretty good turnaround that you've instituted already Paul probably the question that I get most often from investors is on the active copper cable opportunity there seems to be a little bit of confusion, whether you're playing in the vertical.
Paul H. Pickle: Paul, probably the question that I get most often from investors is about the active copper cable opportunity. There seems to be a little bit of confusion whether you're playing in the vertical aspect or the horizontal aspect or both. Maybe you could clarify that and maybe help us understand if it's the same chipset that you will use for vertical and horizontal applications.
Speaker Change: Aspect or the horizontal aspect our boat, maybe you could clarify that and maybe help us understand if it's the same chipset.
Speaker Change: That you will use for vertical and horizontal applications, just a little bit more color on this opportunity.
Paul H. Pickle: Just a little bit more color on this opportunity.
Paul H. Pickle: Yeah, so we're playing in both, and so every rack will have two sets of active copper cables within them. That would be a total of 36 cables, but it's not the 5,000 direct-attached cables you'd have to subtract from that. But horizontal cabling in between the racks is a larger opportunity, but of course, it really does depend on the build configuration or the shipping configuration, up to 162 cables for those horizontal NV links. In terms of chipsets, it's almost the same chipsets, but there are a few ICs.
Paul H. Pickle: Yeah. So we're playing in both and so every rack will have two sets of active copper cables within them that that would be a total of 36 cables, but it's not there.
Paul H. Pickle: It's not the 5000 are direct attach cables you'd have to subtract from that but horizontal cabling in between the racks.
Paul H. Pickle: Is a larger opportunity but of course built really does depend on the build configuration or the shipping configuration up to 170.
Paul H. Pickle: 162 cables rather.
Speaker Change: For those horizontal in the links.
Speaker Change: In terms of chipset, it's almost the same chipsets, but there's a there's a few ics.
Speaker Change: I got you.
Harsh V. Kumar: I got you. I'm sorry, Paul, for my follow-up.
Speaker Change:
Speaker Change: I'm sorry, Paul for my follow up when I looked at turnarounds. It's almost always the same sort of playbook you know managing comes in fixed as the business cuts to cost stabilized as the cash flow and then the next steps I'd taken you've done all of these steps you're kind of at a point, where your business is self sustaining.
Paul H. Pickle: When I look at turnarounds, it's almost always the same sort of playbook. Management comes in, fixes the business, cuts the costs, stabilizes the cash flow, and then the next steps are taken. You've done all these steps. You're kind of at a point where your business is self-sustaining. But there's also that question in your case of potential delevers, and I was curious if you're at a point where you're starting to think about that opportunity set that's potentially available to you, or is it too early to talk about it?
Speaker Change: But there's also that question in your case of potential deleveraging and I was curious if you're at a point, where you're starting to think about that opportunity set that's available potentially to you or is it too early to talk about it.
Mark Lin: Well, I'll kick this question over to Mark if you don't mind, Harsh.
Speaker Change: Well I'll I'll kick this question over to Mark if you don't mind harsh yeah.
Mark Lin: Yeah, Harsh, thank you for recognizing, you know, the Q1 results that OPEX is stabilized. And based on our outlook, we really do expect an upswing in cash flows and EBITDA growth to improve our leverage metrics. That said, you know, consistent with what Paul said in his first earnings call with Semtech, a reduction in the quantum of debt beyond free cash flow generation is something we all believe is important here. I'll also add that we evaluate capital structure alternatives in the ordinary course, including a refinancing of our debt, in addition to potential asset sales at what I would consider appropriate values.
Speaker Change: Yeah.
Mark: Thank you broken rising you know Q1 results you know that Opex is stabilized and based on our outlook. We really do expect an upswing in cash flows and EBITDA growth to improve our leverage metrics.
Speaker Change: That said you know consistent with what Paul said in his first earnings call with <unk>.
Speaker Change: A reduction in the quantum of debt beyond free cash flow generation is something we all believe is important here.
Speaker Change: I'll also add that we evaluate capital structure alternatives in the ordinary course, including a refinancing of our debt. In addition to potential asset sales at what I would consider appropriate values right I covered our covenant compliance outlook in my prepared remarks.
Mark Lin: I covered our covenant compliance outlook in my prepared remarks, and you know, I'll just note that any disposition will not be a fire sale, and we'll need to appropriately value the asset. As you know, we can't provide timelines or specifics, but transaction proceeds we'd use to reduce debt, and improving leverage ratios and financial metrics are all factors that we consider in a potential divestiture.
I'll just note that any disposition will not be at a fire sale and we'll need to appropriately value the asset.
Speaker Change: You can understand we cannot provide timelines or specifics, but transaction proceeds we used to reduce debt and improving leverage ratio and financial metrics are all factors that we consider.
Speaker Change: A potential divestiture.
Paul H. Pickle: Yeah, and if I could summarize that, I'd say all tools are at our disposal, all options are on the table. We definitely are focused on reducing the overall debt load, and we'll take a look at every option available to us.
Speaker Change: If I could summarize that I'd say all tools are at our disposal all options on the table. We definitely are focused on reducing the overall debt load and we'll take a look at every option available to us.
Harsh V. Kumar: I appreciate it, guys. I wasn't looking for timing, but I know you can't give that, but I appreciate the fact that that option is still open at some point in time. Thanks, fellas.
Speaker Change: I appreciate it guys I wasn't looking for timing I know you can't give that but I. Appreciate the fact that that option is still open at some point in time. Thanks Fellows. Thank you.
Ara: Thanks Ara.
Ara: Okay.
Operator: Thank you. Our next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of toys Svanberg with Stifel. Please proceed with your question.
Tore Egil Svanberg: Yes, thank you, and congratulations on the continuous progress here. Back to the question on ACC, I think for 1.6T, Paul, you mentioned that the cable manufacturers are seeing POs and that you are qualified there. Can you just elaborate a little bit on that, and how should we think about timing there as far as, you know, when you would see that potential length?
Tore Egil Svanberg: Yes, Thank you and congratulations on the continuous progress here.
Speaker Change: Back to the question on ACC I think for 1.6 key Paul you mentioned that the cable manufacturers are seeing pls and.
Svanberg: Qualified there could you just elaborate a little bit on that and you know how should we think about timing there as far as when you would see that potential of that.
Paul H. Pickle: Yeah, all right. So, you know, as is kind of typical in hyperscale data centers, we'll end up working with a lot of those hyperscalers, as well as technology partners to spec products and build chips, you know, collaborating on those chip definitions. And, as is often the case, they'll specify to us who they want us to utilize for fulfillment. A lot of times, that does go to an active optical cable manufacturer, in this case, an active copper cable manufacturer.
Speaker Change: Yeah, Alright. So you know as is kind of typical in Hyperscale data center will end up working with a lot of those hyperscale or as as well as technology partners.
Speaker Change: To spec product and build chips.
Speaker Change: Collaborating on those chip definitions as is often the case they'll specified to us who they want us to utilize it for fulfillment a lot of times that does go to and active optical cable manufacturer and escape are inactive.
Paul H. Pickle: I'm not at liberty to say who those partners are, but there are two partners that have been designated, and we're working with those partners for final qualification. And then in terms of timing, it's still, right now, the timing is holding consistent with what we've said in the past, so the latter half of this fiscal year. And I would really kind of say that the ramp is next fiscal year, but we'd expect to see some early revenue.
Speaker Change: Copper cable manufacturer I'm not at Liberty.
Speaker Change: Liberty to say, who knows who those partners are but there's a two partners that have been designated we're working with those partners for final qualification.
Speaker Change: And then in terms of timing, it's still right now the timing is holding consistent with what we've said in the past. So the latter half of this fiscal year and I would really kind of say that the ramp is next fiscal year, but we would expect to see some early revenue.
Operator: Transcribed by https://otter.ai
Speaker Change: This year very good thanks, yeah very good thanks for that and that's my follow up for Mark.
Speaker Change: So the way I understand there is no market that the Opex is now sort of at the right level and going forward you would grow at half the rate of sales is that how should we think about it or there'll be some further opex reductions.
Speaker Change: This fiscal year.
Paul H. Pickle: I'm pretty comfortable with where the OPEX levels are right now, but we are constantly looking at how to better spend the dollars and better allocate the dollars for near-term results. As revenues grow, there's going to be some OPEX growth just within sales and marketing that can be expected, but the growth rate that you provided, I can sign off on that.
Speaker Change: Yeah, I'm I'm pretty comfortable with where the opex levels are right now but.
Speaker Change: We are constantly looking at how to better spend.
Speaker Change: The dollars better allocate the dollars for near term results.
Speaker Change: As revenues grow there's going to be some opex growth just within.
Speaker Change: Sales and marketing that can be expected, but.
Speaker Change: The growth rate that you provided.
Speaker Change: I can sign off on that.
Tore Egil Svanberg: That's very helpful. Thank you. Congratulations again.
Tore Egil Svanberg: That's very helpful. Thank you.
Speaker Change: That's very helpful. Thank you congrats again.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Quinn Bolton with Needham and Company. Please proceed with your question.
Speaker Change: Thank you.
Speaker Change: Alright next question comes from the line of Quinn Bolton with Needham <unk> Company. Please proceed with your question.
Nathaniel Quinn Bolton: Hey guys, I'll offer my congratulations as well. Just wanted to follow up on the ACC opportunity. I know you're going to get a lot of questions here, but there's been a pretty wide range of expectations for this opportunity for you guys. I'm wondering if you might want to try to level set some of those expectations. I mean, how big – what do you think a reasonable expectation might be for this business, say, in fiscal 26?
Nathaniel Quinn Bolton: Hey, guys I'll offer my congratulations as well just wanted to follow up on the HCC opportunity that youre going to get a lot of questions here, but yeah, theres been a pretty wide range of expectations for this opportunity for you guys wondering if you might want to try to level set some of those expectations I mean, how big what do you think a reasonable expectation Mike.
Nathaniel Quinn Bolton: For this business.
Speaker Change: Fiscal 'twenty six I know Youll get.
Speaker Change: A little bit of revenue, maybe preproduction in fiscal 'twenty, five, but as we look out to next year.
Speaker Change: Could this be.
Speaker Change: So rather than answer how big could it be because.
Paul H. Pickle: So, rather than answer how big it could be because... You know, to imagine the high end, it's a pretty big number. I would prefer to kind of focus on what I think is currently a bit more of a reasonable expectation, at least what we're kind of planning around. So the number of cables that could be used is heavily dependent on both the rack configuration, an NBL-72 versus NBL-36, and the number of horizontal connections, and obviously the number of NBLs that will ship next year.
Speaker Change: To imagine the high end, it's a pretty big number I would prefer to kind of focus on what I think is.
Speaker Change: Currently.
Bit more of a reasonable expectation at least what we're kind of planning around so.
Speaker Change: The number of cables that can be used is heavily dependent on both the rack configuration and NBL 72 versus <unk> 36, and the number of horizontal connections and obviously the number of [laughter] Mpls that will ship next year. So it's heavy.
Paul H. Pickle: So it's heavy dependence on shipment configuration, but to just cut to the chase, we kind of size it at a $100 million opportunity. I'm not, as a base case, I definitely don't want to put a high side case number out there. I think, on that basis, it's reasonable to expect that we're going to share production between us and one other component supplier. And if you want to just put a slug in there for the share that we would see, you could call it 50-50.
Speaker Change: Heavy dependence on shipment configuration, but.
Speaker Change: To just cut to the chase, we kind of size it at 100 million dollar opportunity.
I'm not as base case, I'm definitely don't want to put a high side case, a number out there I think on that base case, it's reasonable to expect that we're going to share production.
Speaker Change: Between us and one other component supplier.
Speaker Change: And you know it's a if you want to just put a slug and therefore the share that we would see you could call. It 50 50.
Paul H. Pickle: We were first to provide the chips, and first to get designed in. Maybe that gives us a slight first mover advantage, but I think it's reasonable to expect this kind of settles out down to a 50% share split.
Speaker Change: We were first to provide the chips first to get designed in May.
Speaker Change: Maybe that gives us a slight first mover advantage, but I think it's reasonable to expect this kind of settles out down to a 50% share split.
Nathaniel Quinn Bolton: A quick clarification there, Paul. Is that $100 million the opportunity for the total TAM that would then be split by you and the competitor, or is $100 million sort of the expectation for Semtech revenue? And then I've got, hopefully, a follow-up.
Speaker Change: Got it quick clarification, there pulls that $100 million is that the opportunity for the total Tam that would then be split by you and a competitor is $100 million sort of the expectation for <unk> revenue and then I've got a hopefully a follow up.
Paul H. Pickle: So that is. That is a total SAM, and then we would get a share of that. And I'm looking at a particular program use case. So two models, different configurations, but just one particular program.
Speaker Change: So that is.
Speaker Change: That is a total Sam.
Speaker Change: Sam and then we would get a share of that and I'm looking at a particular program use case, so two models.
Speaker Change: Different configurations, but just one particular program.
Nathaniel Quinn Bolton: Okay, thank you for that. And then you mentioned LPOs. Some of the DSP vendors are suggesting that LPO activity may have slowed as you get the linear received DSPs coming to market. Just wondering if you could sort of share your thoughts.
Speaker Change: Got it okay. Thank you for that and then you'd mentioned L. P.
Speaker Change: Some of the DSP vendors are suggesting that <unk> activity.
Speaker Change: May have slowed as you get the linear received DSP is coming to market. Just wondering if you could sort of share your thoughts where are you seeing interest in <unk>.
Paul H. Pickle: Where are you seeing interest in LPOs? Do you see it in, you know, GPU backend networks? Do you see it in general switch infrastructure and data centers? Are there other use cases where you're seeing interest in LPOs growing? Yeah, so
Speaker Change: It in GP.
Speaker Change: GPU back in network do you see it in general switch infrastructure and data centers or are there. Other use cases, where you were seeing interest in <unk> is growing.
Paul H. Pickle: Yeah, so all right, I guess if I was a DSP vendor, I'd probably downplay it as well. The jury's still out in terms of how widespread, you know, GPU-based back-end networks will be. You got a GPU vendor out there that has already made the statement that they'll end up using LPO. You know, that's a significant SAM in and of itself. And whether or not it ends up in, you know, general data center use, you know, in the FiberMap, I think that's where some of the question might lie. And I will say the jury's still out.
Speaker Change: Yeah, So alright, I guess, if I was a DSP vendor I'd, probably downplayed it as well.
Speaker Change: Right.
Speaker Change: Yes, there is they're the jury is still out in terms of how widespread Gpus based banking networks.
Speaker Change: No.
Speaker Change: You've got a GPU vendor out there that has already made the statement.
Speaker Change: That they'll end up using L. P O.
Speaker Change: You know that that's a that's a significant sam in and of itself and whether or not it ends up in.
General datacenter use in the fiber map I think I.
That's where some of the some of the question might lie and I will say the jury's still out of it it does kind of come down too.
Paul H. Pickle: It does kind of come down to, you know, operation over all parameters. And right now, it's still kind of hinging on lifetime data. We think it looks good. The one thing that I know for certain is that the motivation there to use it and implement it is quite high. It's one-fifth. Let's assume that nobody cares about the cost of a DSP, which I think is probably the case. It's not about
Speaker Change: Operation over all parameters and right now, it's still kind of Hinging on lifetime data, we think it looks good.
Speaker Change: The one thing that I know for certain the motivation there to use it and implement it is quite high it's one fifth let's assume that nobody cares about the cost of the DSP, which I think is probably the case, it's not about saving money, it's but it's one fifth the power consumption.
Paul H. Pickle: But it's one-fifth the power consumption of a full re-timed solution. So you've got a couple of variances. You could end up with a full re-timed solution, a half re-timed or LCO solution, and then a linear pluggable solution.
Speaker Change: Over a retired in full re time solution. So.
Speaker Change: You've got a couple of variances you could end up with a full re type solution have free time their LCR solution and then a linear plug a hole solution I think.
Paul H. Pickle: I think, you know, either way, it shakes out. Right now, the data center is going to go through a boom for the next three to five years. There's going to be lots of variations of technology implementations. And it's all going to come down to, you know, who can squeeze out the best performance for the power limitations that they have. And so that's why we're still rather bullish on the opportunity. Thank you, Paul
Speaker Change: Either wage it shakes out.
Speaker Change: Now data center is going to go through a boon for the next three to five years is going to be lots of varying variations of technology implementations and it's all going to come down to you know.
Speaker Change: Who can squeeze out of the best performance for the power limitations that they have and so that's why we're still rather bullish on the opportunity.
Speaker Change: Perfect.
Speaker Change: Thank you Paul Thank you Mark.
Paul H. Pickle: Thank you, Mark. I'll tag on one little quick, you know, answer to that answer I just gave. If you look at, you know, the really kind of compelling reason to use ACC and the reason why copper is coming back in terms of popularity is because if we look at a DSP-based solution versus, you know, a copper solution, as in an AEC versus an ACC, it's one-fifth the power. So it's really compelling, works pretty well in short reach, you know, up to so many meters. But when you go beyond that, you're going to need retime solutions. So I think everybody's going to have a role over the next three to five years.
Speaker Change: I'll I'll tag on one little quick.
Speaker Change: The answer to that.
Speaker Change: And sorry, just gave if you look at you know the really kind a compelling reason to use ACC and the reason why copper is coming back in terms of popularity is because if we look at a DSP based solution versus copper solution as an an AUC versus an ACC. It's one fifth the power so it's really compelling.
Speaker Change: Up pretty well in.
Speaker Change: In short reach.
So many meters.
Speaker Change: But when you go beyond that youre going to need real time solution. So I think everybody's going to have a play over the next three to five years.
Speaker Change: Thank you.
Operator: Thank you. Our next question comes from the line of Rick Schafer with Oppenheimer & Company. Please proceed with your question.
Speaker Change: Thank you. Our next question comes from the line of Rick escaping with Oppenheimer and company. Please proceed with your question.
Speaker Change: Okay.
Richard Ewing Schafer: Thanks, and I'll add my congratulations. And Paul, just on that last comment, really quick, kind of a follow-up question, I mean, does that mean, you know, do you guys have the capability or the desire, would you guys move into AEC to kind of get, maybe, a little bit longer reach than, say, the two meters or wherever ACC is right now?
Speaker Change: Thanks, and I'll add my congratulations to Paul just on that last comment really quick kind of a follow up question. I mean does that mean do you guys have the capability or the desire would you guys move into ADC to kind of get maybe you don't move a little bit longer reach to say that the two meters or wherever accs right now.
Paul H. Pickle: I'll put it this way. I'm a big fan of land and expansion. So if you've got a good profitable relationship with the customer, you really need to start looking around at other sockets that might be, you know, in the realm of possibility. I don't like it when companies take a technology-specific stand or they kind of, yeah, I prefer a bit of more of a technology agnostic approach. And so this is an area where over the next five years, I think we're going to be focusing pretty hard on the strategy and looking to fill out some of those needs that we think are going to come in four to five years. You know, different architectures for re-timed data transport solutions are going to be a necessity of ours, and we're going to continue to look to expand the product.
Speaker Change: I'll put it this way I'm, a big fan of land and expand.
Speaker Change: So if you've got a good profitable relationship with the customer you really need to start looking around at other sockets.
Speaker Change: That might be.
Speaker Change: In the realm of possibility I don't like it when companies take a technology specific.
Speaker Change: Stand or are they kind of yeah, I prefer a bit of more of a technology agnostic approach and so.
This is an area where over the next five years I think we're gonna be focusing pretty hard on the strategy and looking to fill out some of those needs that we think are going to come in four to five years.
Speaker Change: You know a different architectures for re timed.
Data transport solutions is going to be a necessity of ours and we're going to continue to look to expand the product portfolio.
Richard Ewing Schafer: Oh, thanks for that. And if I could just ask you a quick question on Tri-Edge.
Speaker Change: Thanks for that and.
Speaker Change: And then if I could just ask a quick one on Tri Ed you mentioned is it sounds like it was.
Speaker Change: It ticked up in the quarter, if I read that correctly in your comments and I, just as I am sort of trying to get a bed.
Paul H. Pickle: You mentioned it, and it sounds like it was, it had picked up in the quarter, if I read that correctly in your comments. And I just was, I was sort of trying to see if we could get a better frame out of what contributions you expect this year, or what that BAM looks like today for you guys versus, say, you know, a couple of years out. I guess I'm really just trying to understand the opportunity set here and where, you know, I understand it's lower power and lower cost and all that. I mean, but where's it going to play? Yeah, well, excuse me.
Speaker Change: Framed items, what contribution do you expect this year or what that Tam looks like today for you guys versus say a couple of years out.
Speaker Change: I guess I'm really just trying to understand what is the opportunity set here.
Speaker Change: Sure.
Speaker Change: I understand it's more power and more costs and all that.
Speaker Change: Where is it going to play.
Speaker Change: Analog as well.
Speaker Change: Great.
Paul H. Pickle: You know, anytime somebody can take an analog approach, it's great. The disadvantages to it are that it does require tuning. We've got some software that we wrap around it to tune the solutions.
Speaker Change: Anytime somebody can.
Speaker Change: Taken analog approach it's great.
Speaker Change: The disadvantages to it is it does require tuning we've got some software that we wrap around it to tune the solutions.
Paul H. Pickle: And so, in a world where everybody's counting picojoules per bit, I think, you know, if you can make it work with analog, it's great. Analog also has some advantages in terms of latency. You know, let's say General Compute Data Center doesn't really care about latency, but AI certainly does. If you're talking about linking GPUs, NVLinks really can't tolerate latency. And then we've also, you know, got some really strong positions at Nokia and Ericsson in the telecom front hall because they can't introduce latency either. So, you know, there's definitely a play there. I think, you know, it's not the end-all, nor are DSP-based solutions. Each one's got its advantages.
Speaker Change: And so it really kind of in a world where everybody is counting Pico joules per bit I think you know if you can make it work with analog it's great.
Speaker Change: Analog also has some advantages in terms of latency.
Speaker Change: Let's say general compute data center doesn't really care about latency, but AI certainly does if you're talking about linking Gpus NV links really can't tolerate latency and then we've also.
Speaker Change: Get some really strong positions and Nokia and Ericsson and telecom front haul because they can't introduce latency either so.
Speaker Change: Yeah, there is definitely a play there I think.
It's it's not the end all nor is a DSP based solutions each one's got its advantages.
Paul H. Pickle: But for us right now, tri-edge is, you know, just kind of. If we look at it on a go-forward basis, just over the next quarter, we would expect it to significantly increase and perhaps double. So we're just seeing a nice, strong uptick for data centers overall.
Speaker Change: But for US right now Tri edge is is you know just kind of.
Speaker Change: You know if we look at it on a go forward basis, just over the next quarter and we would expect it to significantly increase and perhaps a double so we're just seeing a nice strong uptick.
Speaker Change: For data center overall.
Speaker Change: Okay. Thanks, a lot appreciate it Paul.
Richard Ewing Schafer: Okay. Well, thanks a lot. I appreciate it, Paul. Thank you. Our next question comes from the line of Cody Acree with the Benchmark Company.
Operator: Thank you. Our next question comes from the line of Cody Acree with the Benchmark Company. Please proceed with your question. Yeah, thanks for the help, Paul.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Cody Acree with the Benchmark Company. Please proceed with your question.
Cody Grant Acree: Oh, yeah. Thanks for the help Paul can you maybe you you gave us the details on that the copper cables can you maybe provide some of the similar.
Speaker Change: The framework around your expectations for Lps.
Speaker Change: Yes so.
Cody Grant Acree: Yes, so right now, we're kind of, we've got a design project with a particular, what I would call a technology partner. You know, it's the same partner around ACC, specifically for LPO, other vendors. We've got a tech partner in Broadcom also that we're testing out solutions with. We're going through lifetime testing with another OEM. So it's making progress. And then, I think, as we kind of look at some of those LPO products, they're actually being teamed up with in-house DSP solutions from other technology partners that are not meant as a standard product portfolio per se. So there is good activity across the board.
Speaker Change: Right now we're kind of we've got design project was a particular, what I would call a technology partner.
Speaker Change:
Paul H. Pickle: It's the same partner around ACC.
Specifically for L. P O.
Paul H. Pickle: Most.
Paul H. Pickle: Other vendors, we've got a tech partner and Broadcom also that we're testing out solutions, we're going through lifetime testing with another Oems.
Paul H. Pickle: Its making its progress and then I think as we kind of look at some of those L. P. O products. They are actually being teamed up with in house DSP solutions from other technology partners that are not meant as a standard product portfolio per se. So.
Paul H. Pickle: So for us, we don't need it to be LPO necessarily. These 200 gigabit per lane single lambda parts are going to find their way into lots of different applications, whether they're just really good, strong, linear TIAs and drivers. And that kind of lends itself to being in a direct drive or in a half-retimed or in a full-retimed. It doesn't really matter to us
Paul H. Pickle: Good activity.
Paul H. Pickle: They're across the board so for US we don't need it to be L. P. O necessarily these 200 gig per lane single Lambda parts are going to find their way into lots of different applications, whether they are just really good strong linear.
Paul H. Pickle: T I A's and drivers and that kind of lends itself to being in a direct drive or in a half three times or in a full re timed really doesn't matter to us I think we're going to we're going to do rather well with the product line.
Paul H. Pickle: Yeah.
Paul H. Pickle: I think we're going to do rather well with the product line. So any expectations around LPOs for next year? Not currently.
Speaker Change: So any expectations around the L. P OS for next year.
Speaker Change: Not currently I think we've got we're a little bit further along the design curve.
Paul H. Pickle: I think we're a little bit further along the design curve, the design in and win curve with ACCs. I think I'll be able to put better color on our 200 gigabit single lambda product and 1.6T optical solutions in the next couple of quarters. Okay, and then just lastly, can you just help us with the migration of the industry to 200 gigabit single-lambda, just where you're seeing the breadth of implementation today and where do you expect that to go? Yeah, you know, that's kind of interesting.
Speaker Change: The design in and win curve with Acs.
Speaker Change: I think I'll be able to put better color too.
Speaker Change: 200 gig single Lambda product and 160 optical solutions in the next couple of quarters.
Speaker Change: Okay, and then just lastly.
Speaker Change: Can you just help us with the migration of the industry to get 200 gig single Lambda, just where youre seeing the.
Speaker Change: The breadth of implementation today, and where do you expect that to go.
Speaker Change: Yeah, that's kind of interesting where we're talking about 100 gig we're talking about 200 gig, but the reality is you know we still are the majority of our revenue in FY 'twenty four was on 50 gig per channel and.
Cody Grant Acree: We're talking about 100 gigabytes, we're talking about 200 gigabytes, but the reality is, you know, we still are, the majority of our revenue in FY24 was on 50 gigabytes per channel, and, you know, even today, we're starting to leg into 100 gigabytes, and it's becoming an appreciable amount. Let's say it's doing at least as much as 50 gigabytes per second, but I still think 50 gigabytes per lane is still going to be the bulk of it.
Speaker Change: You know even today, we're starting to leg into our 100 gig and it's getting an appreciable amount, let's say, it's doing at least as much as 50 gig, but I still I think 50 gig per lane is still going to be the bulk of it. So this is a bit more of a.
Cody Grant Acree: So this is a bit more of a, You know, in terms of the total shipping opportunity, I think this year is really going to be the transition year where we see general compute kind of migrate towards 100 gigabyte solutions. That's still the expectation, although it's moving, you know, fairly slowly, not at a rapid pace, but AI is really kind of driving, almost skipping a major node here at 100 gigabits, moving straight to 200. So it's a little hard to say what that transition in terms of revenue contribution is going to be like right now.
Speaker Change: In terms of the total shipping opportunity I think this year is really going to be the transition year, where we see general compute kind of migrate towards 100 gig solutions, that's still the expectation, although it's moving.
Speaker Change: <unk> fairly slowly not at a rapid pace.
Speaker Change: But AI is really kind of driving.
Speaker Change: You can almost skipping.
Speaker Change: Nature note here at 100 gig moving straight to 200 so.
Speaker Change: It's a little hard to say what that transition in terms of revenue contribution is going to be like right now.
Speaker Change: Alright, great. Thanks, guys.
Speaker Change: Okay.
Operator: Thank you. Our next question comes from the line of Tristan Gerra with Baird. Please proceed with your question.
Tristan Gerra: Thank you. Our next question comes from the line of Tristan <unk> with Baird. Please proceed with your question.
Tristan Gerra: Hi, good afternoon. So you've talked about ACC potentially moving to a general purpose data center in 26. In AI, how sustainable is that in future AI platforms beyond this year? When do we see horizontal and vertical connections moving ultimately to optical? And if not, why not?
Hi, good afternoon, so you've talked about the ATP potentially moving to general purpose data center in 'twenty six.
Speaker Change: In AI, how sustainable is that future AI platform beyond this year.
Speaker Change: When do we see horizontal and vertical connection.
Speaker Change: Moving it ultimately to optical and if not why not.
Paul H. Pickle: It could very well be, but all right, so I'll take I'll tackle that last bit Tristan if you don't mind. If we look at the configuration, if racks are going to be close together, and the reach is rather short, it doesn't, you know, you don't necessarily need an optical link for that. Where would it make sense to do optical? Well, if we can't do 400 gigabit, you know, single lane, 400 gigabit active copper cables, well then I think the natural migration path would be to optical for up to some reach.
Speaker Change: It could very well be but alright, so I'll take I'll tackle that last bit trust and if you don't mind.
Speaker Change: If we look at a configuration and Fracs are gonna be close together and the reaches rather short it doesn't you.
Speaker Change: You don't necessarily need optical for that where would it makes sense to do optical if we can't do 400 gig.
Speaker Change: You know singled.
Speaker Change: Single Lane 400 gig active copper cables will then I think the natural migration path would be to to optical for up to some reach but that's where you have to kind of think in terms of internal to the rack. Those direct attach cables are they going to have to go active versus a P.
Paul H. Pickle: But that's where you have to kind of think in terms of internal to the rack, those direct attach cables. Are they going to have to go active versus, you know, passive solutions at some speed? A lot of people would say yes. I think we, you know, we have to kind of wait and see how that goes. It really kind of depends on these, you know, the switch ASICs and how strong their drivers are.
Speaker Change: Passive solutions at some speed a.
Speaker Change: A lot of people would say, yes, I think we have to kind of wait and see how that how that goes it really kind of depends on these.
Speaker Change: The switch Asics and how strong.
Speaker Change: Strong their drivers are but.
Paul H. Pickle: But, you know, I don't see active copper. If the question is, is active copper going to be something that's short-term, I think the answer to that is absolutely not. It's going to be another tool in the arsenal, and it all kind of comes down to reach. But if, you know, if we can't do 400 gigabit active copper at, let's say, one and a half meters or so, then, you know, direct drive, no latency, no cable connections is the next logical choice rather than retime because you can't introduce latency into those NVLinks. Does that answer your question?
Speaker Change: I don't see active copper if the question is is active copper going to be something Thats short term I think the answer to that is absolutely not it's going to be another tool in the Arsenal and it all kind of comes down to reach but if I'm in Turkey. If you look at those horizontal cables, if if we can't do for.
Speaker Change: <unk> hundred gig active copper at let's say one five meters or so then you know direct drive no latency.
Speaker Change: Optical connections is the next logical choice rather than re time, because you can't introduce latency into those <unk> links.
Speaker Change: Does that answer your question yes.
Tristan Gerra: Yeah, yeah, very, very helpful. Thank you. My follow-up question is, looking at the gross margin catalyst for the second half of this year, is that just a function of the optical business growing faster than the average, or should we be looking at other catalysts in terms of continued gross margin upside?
Speaker Change: Yeah, Yeah, very very helpful. Thank you.
Speaker Change: My follow up question is looking at the gross margin candidates for the second half of this year.
Speaker Change: Is that just a function that's optical going faster than the average or should we be looking at other candidates.
Speaker Change: In terms of continued gross margin upside.
Well Theres a theres a few catalysts. So we've got if you think in terms of some of the end markets that we set a fairly soft.
Paul H. Pickle: Well, there are a few catalysts. So we've got, if you think in terms of some of the end markets that we said were fairly soft, telecom certainly is a positive gross margin driver when that comes back. Pawn has been a decent driver as well. Laura is a pretty decent margin for us.
Speaker Change: You know telecom certainly is a positive gross margin driver when that comes back.
Speaker Change: PON PON has been a decent driver as well.
Speaker Change: Laura is a pretty decent margin for us so that would be a good driver for us.
Speaker Change: Except for.
Paul H. Pickle: So that would be a good driver for us. Anything except for, you know, the hardware business, the module business tends to be a little bit lower, quite a bit lower. And then, you know, that router business mid-50s or so is typically what it is. But any of those trends, I think, are going to, you know, really give us a boost. Mark, did you want to add anything to that?
Speaker Change: The hardware business. The module business has it tends to be a little bit lower quite a bit lower and then you know that that routers business mid fifties or so it's typically what it is.
Mark: But any of those trends I think are going to you know really gives us a boost mark did you want to add anything to that.
Mark Lin: Yeah, it's largely a matter of mix, but we see some of the faster growing businesses at the higher margin range offset by a bit by the hardware business recovery in the second half.
Speaker Change: It's a.
Mark: Luxury.
Mark: A matter of mix, but we see some of the faster growing businesses.
Speaker Change #100: The higher margin range.
Speaker Change #101: Offsetting a bit by the hardware business recovery in the second half, yeah and consumer goods.
Paul H. Pickle: Yeah, and consumer goods, it's been fairly strong for us. It's still, we see support for consumer goods that has a tendency to be a little bit lower, a little bit more diluted to corporate margins, so if that backs off and something else fills its spot, you're going to see that gross margin go up.
Speaker Change #101: It's been fairly strong for us it's still we see support for consumer consumer goods that hesitancy to be a little bit lower a little bit more dilutive to corporate margins. So.
Speaker Change #101: If that backs off in something else fill hills at spot Youre going to see that our gross margin go up.
Speaker Change #102: Great. Thank you very much.
Tristan Gerra: Great, thank you very much.
Operator: Thank you. Our next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.
Speaker Change #103: Thank you. Our next question comes from the line of Craig Ellis with B Riley Securities. Please proceed with your question.
Craig Andrew Ellis: Yeah. Thanks for taking the questions guys and congratulations on the progress. So I was hoping Paul if we could just go back to some comments on active copper cable and at the risk of getting the cart too far before the horse if we think the opportunity may be.
Craig Andrew Ellis: Yeah, thanks for taking the questions, guys, and congratulations on the progress. So, I was hoping, Paul, if we could just go back to some of the comments on active copper cable and the risk of getting the cart too far before the horse.
Paul H. Pickle: If we think the opportunity may be a $100 million opportunity in fiscal 26 that you would be splitting, how do we think about the growth rate beyond that? I know a number of companies have put out chip-related AI growth rates that would be in the 30% to 50% Kega range. Is that the range that this business could grow in, or how do we think about what happens after fiscal 26?
Craig Andrew Ellis: 100 million dollar opportunity in fiscal 2006 that you'd be splitting how do we think about the growth rate beyond that I know a number of companies to put out.
Craig Andrew Ellis: Chip related AI growth rates would that would be in the 30% to 50% CAGR range is that the range that this business could grow in or how do we think about what happens after fiscal 'twenty.
Craig Andrew Ellis: I do think that it could grow by a multiple of those ship rates, so that 30 to 50, I think it can be higher, but it really does, you know, the secular trend that we're going to look at is that shipping configuration. If people are actually putting these in multi-rack installations to take advantage of multiple racks being grouped together in giant GPU clusters, and that's largely dependent on the use case, which is kind of taking off, favoring a massive paralleled architecture, then the opportunity, I think, could be quite explosive. So it really kind of depends on what that shipping configuration looks like, and as AI continues to evolve, you know, how they want to utilize available exaflops.
Speaker Change #105: I do think that it could grow.
Speaker Change #105: Multiple of those ship right. So that 30% to 50, I think can be higher but it really does.
Speaker Change #105: The secular trend that we're going to look to is the that shipping configuration. If people are actually putting these in multi rack installations to take advantage of multiple racks being grouped together in giant GPU clusters, and that's largely dependent on use case.
Speaker Change #105: Use cases kind of taking off favoring a massive parallel architecture than the opportunity I think it could be quite explosive so it really kind of depends on what the shipping configuration looks like and as AI continues to evolve.
Speaker Change #105: How they want to utilize available extra flops.
Paul H. Pickle: Got it. And that's really helpful.
Speaker Change #106: Got it and that that's really helpful. And then I just went back to some of the other comments I'm thinking on a multiyear basis about signal integrity in total so we've got the base station business, that's been pretty quiet, but you know bouncing along the bottom China upon taking a breather. This.
Craig Andrew Ellis: And then just going back to some of the other comments and thinking on a multi-year basis about signal integrity in total. So, we've got the base station business that's been pretty quiet, but, you know, bouncing along the bottom. China Pond is taking a breather this quarter but has room to at least reaccelerate a bit. And then the data center and its AI growth component look pretty strong. So, as we look out beyond fiscal 25 to fiscal 26, it seems that all of your segments should be contributing to growth. Or is there something that you see beyond this year within signal integrity that would cause one of the four big drivers to take a breather?
Speaker Change #106: Quarter, but has shrunk to reaccelerate.
Speaker Change #106: Reaccelerate a bit in a data center.
Speaker Change #106: And its AI a growth component look pretty strong so it.
Speaker Change #107: As we broke out beyond fiscal 'twenty five to fiscal 'twenty six it seems that all of your segments should be contributing to growth.
Speaker Change #108: Or is there something that you see beyond this year within within signal integrity.
Speaker Change #109: Caused one of the one of the four big drivers take a breather.
Paul H. Pickle: I don't see the drivers taking a breather. You know, it's one of the first things I did when I got here. I kind of looked at, you know, 10-year trends for some of the product lines, and Signal Integrity was one of those that grew very consistently, albeit had some definite cyclicality to it, but if you draw a line through it, it's an 8% CAGR, and that's before AI became, you know, an upside SAM opportunity for us. So I think it's going to uptick from there. I think it's going to have some pretty decent multiple-year growth, sequential growth, so we should be in pretty good shape at this moment.
Speaker Change #110: I don't see.
Speaker Change #111: The drivers taking a breather.
Speaker Change #112: One of the first things I did when I got here it kind of looked at.
Speaker Change #112: The 10 year trends for some of the product lines and signal integrity is one of those it grew very consistently albeit.
Speaker Change #113: Had some <unk>.
Speaker Change #113: Definitely cyclicality to it but if you draw a line through it it's an 8% CAGR and that's before AI became an upside Sam opportunity for us. So I think it's going to uptick from there I think it's going to have some pretty decent multiple year growth sequential growth. So we should be in <unk>.
Speaker Change #113: Good shape at this moment.
Craig Andrew Ellis: Got it. Thanks for the help.
Speaker Change #115: Got it thanks for the help good luck guys.
Speaker Change #114: Thank you.
Operator: Thank you. Our next question comes from the line of Scott Searle with Roth Capital Partners. Please proceed with your question.
Speaker Change #114: Thank you.
Speaker Change #114: Our next question comes from the line of Scott Searle with Roth Capital Partners. Please proceed with your question.
Scott Wallace Searle: Hey, good afternoon. Thanks for taking the questions and nice job on the quarter. Nice to see the recovery moving back in the right direction on the semi-front. Thank you, Scott. Hey, Paul, maybe moving away from the optical side of the equation for a second to follow up on the prior question on PON.
Scott Wallace Searle: Hey, good afternoon, thanks for taking the questions and nice job on the quarter nice to see the recovery moving back in the right direction on the semi front.
Thank you Paul meeting, maybe moving away from the optical side of the equation for a second the follow up on the prior question on par and it sounds like this quarter. There is a little bit of digestion of wonder if you could address the drivers of these specifically China right now and if we shouldn't watermark and as it relates to lower it also had a similarly strong quarter.
Paul H. Pickle: It sounds like this quarter there's a little bit of digestion. I'm wondering if you could address the drivers. Are they specifically China right now, and have we seen a watermark? And as it relates to Lora, it also had a similarly strong quarter. What's the long-term growth rate that you're thinking about for the lower opportunity going forward?
Speaker Change #117: What's the long term growth rate that you're thinking about for the lower opportunity going forward.
Scott Wallace Searle: Okay, Scott, we had a little bit of a, you know, hiccup in your audio. What was the first question again?
Scott Wallace Searle: Okay, Scott, we had a little bit of a.
Speaker Change #118: Hiccup in your audio what was the first question again.
Scott Wallace Searle: Oh, my apologies. You know, just Pond, in terms of drivers, is it moving beyond China? And is the 27 million that you saw this quarter, is that kind of a high watermark for the next several quarters, or is that something we're going to breach as we get into fiscal 26? And on the lower front, you know, when you came in, I think you recalibrated expectations of the long-term growth rate in that marketplace.
Scott Wallace Searle: Oh my apologies.
Speaker Change #119: Just PON in terms of the drivers isn't moving beyond China and has a 27 million that you saw this quarter is that kind of a high watermark for the.
The next several quarters or is that something we're gonna breaches, we get into fiscal 'twenty six and then the lower front.
Speaker Change #120: When he came in I think you recalibrated expectations of a long term growth rate in that marketplace, but a nice recovery this quarter I'm assuming that some of that is just a little bit of inventory backfill in channel demand snapping back a little bit what is the long term growth rate that you are thinking about for lower going forward.
Scott Wallace Searle: But a nice recovery this quarter. I'm assuming that some of that is just a little bit of inventory backfill and channel demand snapping back a little bit. What is the long-term growth rate that you're thinking about for lower going forward?
Paul H. Pickle: Okay, so I'll take your first question first. So in terms of pawns, definitely China is behind this kind of recent uptick. If we look at pawn, it was definitely down. We had a delay in pawning Chinese tenders. But overall, I think there's really some underlying strong trends there in terms of pawn. I wouldn't, you know, when we start talking about China's pawn business, everybody kind of equates it to that real estate market.
Speaker Change #121: Okay. So.
Speaker Change #122: I'll take your first question first so in terms of <expletive> definitely China is behind this kind of recent uptick if we if we look at <expletive>. It was definitely down we had a delay in Poland, China tenders.
Speaker Change #122: But overall I think there is really.
Speaker Change #122: Some underlying strong trends there.
Speaker Change #122: I wouldn't.
Speaker Change #122: It's when we start talking about China, PON business, everybody kind of equate it to that real estate market, knowing it's down but this is more of an infrastructure upgrade so right now we've had a shift.
Paul H. Pickle: Everything is down, but this is more of an infrastructure upgrade. So right now, we've had a shift; about 50% of the number is coming from 10 gigabits. So this is a really strong indicator that we're in a leadership position there. It is an upgrade cycle, and it's going to be a very profitable cycle for us. And I would expect, you know, a little bit of, you know, peaks and valleys between the quarters.
Speaker Change #122: We're about 50% of the number is coming from 10 gig. So this is a really strong indicator that we're in a leadership position. There. It is an upgrade cycle is going to be a very profitable cycle for us and I would expect you know a little bit of.
Speaker Change #122: Peaks and valleys between the quarter, but overall, we're going to see I am expecting growth in PON and that trend kind of continuing.
Paul H. Pickle: But I think we're going to see, I'm expecting growth in pawns and that trend kind of continuing. So I, you know, right now, I don't have a reason to think that it's going to stop. In terms of the high watermark, you know, I think we're probably at a good number for the moment, you know, that 27 million; it could, it could edge up higher. But I'm not really willing to kind of, you know, count on that at the moment.
Speaker Change #122: Right now I don't have a reason to think that it's a it's going to stop in terms of high water Mark.
Speaker Change #122: I think we're probably at a good number for the for the moment that $27 million.
We could it could edge up higher, but I'm, not really willing to kind of count on that at the moment I think we're we're in healthy territory will see theres, some order hesitancy and lack of visibility as the tenders rolled out so we kind of have to see that kind of stabilize.
Paul H. Pickle: I think we're in healthy territory. We'll see there's some order hesitancy and lack of visibility as the tenders rolled out. So we kind of have to see that kind of stabilize. And you know, we did have a strong catch-up quarter where we had a big boom of bookings in January, and we really had to scramble hard to kind of shift that product.
Speaker Change #122: And we did have a strong catch up quarter, where we had a big boom of bookings in January and we really had to scramble heart kind of ship that product and so that's why it pulls back a little bit.
Paul H. Pickle: And so that's why it pulls back a little bit as we catch up. But we're on a ramp cycle, expected to continue to see some good growth. In terms of other markets, I would point to the Broadband Equity Access and Deployment Initiative out of North America, or BEAD, as they call it. You know, I don't know who picks these acronyms.
Speaker Change #122: As we catch up but we're on a ramp cycle expected to continue so good growth in terms of other markets I would point to the broadband equity access and deployment initiative out of North America or bead as they call it.
Speaker Change #123: I don't know who picks these acronyms, but it's basically a government subsidy to rollout communications infrastructure in urban market. So this is going to be.
Paul H. Pickle: But it's basically a government subsidy to roll out communications infrastructure in urban markets, so this is going to be a pretty good opportunity for us. Fiber is kind of the way to go.
Speaker Change #123: Pretty good opportunity for us fiber is kind of the way to go copper is running out of gas and people don't really want to share those those copper pipes.
Paul H. Pickle: Copper's running out of gas, and people don't really want to share those copper pipes. You know, when everybody gets home, you can have a gigabyte worth of access, and you're still turning 200 meg. And so that's kind of, that's got to change. And I apologize. I said urban markets. It's rural markets.
Speaker Change #123: When everybody gets on you can have a gig worth of access in Europe.
Speaker Change #123: Youre still turning 200, Meg and so that's that's kind of.
Speaker Change #123: That's got to change and I apologize I said urban markets Rural markets. So this is an infrastructure build out thats are coming from our U.
Paul H. Pickle: So this is an infrastructure build out that's coming from U.S. government funds. I think we've got some good trends happening with Pawn. It's not going to change anytime soon. And in terms of lower growth, I would say double digits easily.
Speaker Change #123: U S government funds so.
Speaker Change #123: I think we've got some good trends happening with PON.
Speaker Change #123: It's not going to change anytime soon and then in terms of lower growth I would say double digits easy.
Paul H. Pickle: That's my expectation. However, we want to see that business recover, and we really want to kind of fill out the strategy. We've got some nice development going, so we're going to support a bit more protocols with our next-generation chipsets. For example, we'll be able to support Wyson. You're going to see those announcements over the next couple of quarters as well. We're getting some really nice feedback on that. And so this is to really kind of open up markets for us.
Speaker Change #123: That's my expectations. However, we want to see that business recover and we really want to kind of fill out the strategy. We've got some nice.
Speaker Change #123: Development going so we're going to support a bit more protocols with our next generation chipsets will be able to support Wi Sun Youre going to see those announcements.
Over the next couple of quarters as well, we're getting some really nice feedback on that and so this is to really kind of open up markets for people that don't really want to close protocol market. They can they can adopt and opened one is still utilize the same chipsets.
Paul H. Pickle: People that don't really want a closed protocol market can adopt an open one and still utilize the same chipsets from Semtech. And then we've got some ideas on how to roll out some support tools, configuration tools, and device management tools that are going to make deployment a lot easier. So expect to see some news along those lines over the next few quarters.
Speaker Change #123: From <unk> and then we've got some ideas on how to how to rollout some support tools configuration tools device management tools that are is going to make deployment a lot easier so expect to see some.
Speaker Change #123: Some news along those lines over the next few quarters.
Speaker Change #124: Great very helpful and by the way because one of the better acronyms there sadly.
Scott Wallace Searle: Great. Very helpful. And by the way, BEAT is one of the better acronyms out there, sadly. But a quick question on cellular modules.
Speaker Change #125: But of course I won't tell you the modules.
Paul H. Pickle: Look, there's been a lot of pressure. There's been a lot of channel inventory. But it sounds like the order trends are coming back. I think it's probably down about 70 percent from peak revenue levels. So I'm wondering if you could calibrate us quickly in terms of what the point of sale looks like, how you kind of expect the recovery in the second half of this year, and what's a normalized number to think about as we start to see some of those trends picking back up. I wouldn't expect us to go back to where we were two years ago, but is there a normalized number that you're thinking about?
Speaker Change #126: Is that in.
Speaker Change #127: It's been a lot of pressure there's been a lot of channel inventory. It sounds like the order trends are coming back I think it's probably down about 70% from peak revenue levels. So I'm wondering if you could calibrate us quickly in terms of what the point of sale looks like how are you kind of expect the recovery in the second half of this year and what's a normalized number to think about as.
Speaker Change #127: We start to see some of those trends picking back up I don't wouldn't expect us to go back to where we were two years ago, but is there a normalized number that youre thinking about thanks.
Paul H. Pickle: Yeah, so LPWA is actually leading it, so we're actually seeing municipality rollouts and adoption rates increase, and this is kind of interesting because, you know, if you look at the previous peak revenues, they were a little bit more heavily broadband, but we've got a lot of design-ins on LPWA, and so we're starting to see that adopted in metering applications, and so expect that end market to kind of It's still reported in industrial, but broadband revenue is down mostly because we had heavy, heavy buying from our end customers and not a lot of visibility.
Speaker Change #127: Yeah. So so L. PWA is actually leading it so we're actually seeing.
L. PWA: Municipality, Rollouts and adoption uptake and this is kind of interesting because if you look at the previous peak revenues they were a little bit more heavily broadband, but we've got a lot of design ends on L. PWA and so we're starting to see that adopted and metering applications and so expect that that end market.
L. PWA: To kind of recover a bit faster still still reported in industrial but broadband.
L. PWA:
L. PWA: The broadband revenue is down mostly because we had heavy heavy buying from our end customers and.
L. PWA: Not a lot of visibility is not channel inventory and customer inventory and so as that bleeds down. They also had pass that dip. So you know our industrial Pos that they're industrial pass that and as a result that channel inventory in terms of days of inventory outstanding kind of ballooned with both the numerator and denominator changing so I.
Paul H. Pickle: It's not channel inventory, it's end customer inventory, and so as that bleeds down, they also had POS that dipped, so, you know, our industrial POS dipped, their industrial POS dipped, and as a result, that channel inventory, in terms of days of inventory outstanding, kind of ballooned with both the numerator and the denominator changing, so we're starting to see, you know, signs of life there.
L. PWA: We're starting to see.
L. PWA: Signs of life, there I still don't have a ton of visibility on it but I think my remarks are still very consistent from last quarter.
Paul H. Pickle: I still don't have a ton of visibility on it, but I think my remarks are still very consistent from last quarter. You know, I was talking about Q1 being the bottom. I was hoping Q1 was the bottom, and Q2 might be slightly lower or sideways. I think that's where we are, at Q1 being the bottom. We hit bedrock, as I said in my prepared remarks.
L. PWA: I was talking about Q1 being the bottom I was hoping Q1 was the bottom Q2 might be slightly lower or sideways I think that's where we're at Q1 being the bottom we hit bedrock as I said in my prepared remarks Q2 slight uptick.
Paul H. Pickle: Q2, slight uptick, but we do see industrial POS and that end market coming back a little bit, so we could get a little bit more of a snappier recovery in that hardware business, and that's kind of what I expect. I did see signs of life in routers, and so our end customers of broadband modules should have already or should have also seen some signs of life there, so I think right now we're kind of moving exactly as we stated, so the second half, a snappier recovery, probably a little bit slower in the Q3 time frame, but we'll have better visibility on those inventories. So what's a normalized number for modules, in particular? It's been as high as, I want to say, 355. I'm doing this from memory.
L. PWA: And but.
L. PWA: But we do see industrial Pos in that end market coming back a little bit so we could get a little bit more of a snap your recovery in that hardware business and that's kind of what I expect I did see signs of life in routers.
L. PWA: And so our end customers are broadband modules should have already or should have also seen.
L. PWA: Some signs of life there. So I think right now we're kind of moving exactly.
L. PWA: As we stated so.
L. PWA: Second half snap your recovery, probably a little bit slower in the Q3 timeframe, but we will have better visibility on those inventories.
Speaker Change #129: Inventories so what's a normalized number for modules in particular.
Speaker Change #129: It's been as high as I want to say $3 55, I'm doing that from memory, maybe Mark can correct me.
Speaker Change #129: And if I go back to.
Paul H. Pickle: Maybe Mark can correct me, and if I go back to my November call, I think I gave everybody kind of a normalized revenue number for the ICS routers and modules coming back to on the order of about a $460 million business. I've also said $400 million, let's say $400 million fully recovered, $400 million run rate exit this year, kind of driving towards. I still think we're probably there, and modules can certainly get mid twos somewhere in there, but I'll be able to give you a little bit more color as time goes on.
Speaker Change #129: To my November call I think I gave everybody kind of a normalized revenue number of.
Speaker Change #129: The Ics routers and modules coming back to on the order of about a $460 million business. I've also said $400 million, let's say $4 60 fully recover $400 million.
Speaker Change #129: Run rate exit this year.
Speaker Change #130: Kind of driving towards I still think we're probably there and modules can certainly get more.
Speaker Change #131: Mid twos somewhere in there, but I'll be able to give you a little bit more color as time goes on.
Scott Wallace Searle: Very helpful, thanks so much, and congrats on the quarter again. Thank you. Thank you. And our next question comes from the line of Anthony Stoss with Craig Allen. Please proceed with your question.
Speaker Change #132: Very helpful. Thanks, so much and congrats on the quarter again.
Speaker Change #133: Thank you.
Speaker Change #134: Thank you.
Operator: Thank you. And our next question comes from the line of Anthony Stoss with Craig Allum. Please proceed with your question. Hey guys, nice execution. A lot of questions have been asked, but Paul...
Speaker Change #135: And our next question comes from the line of Anthony Stoss with Craig Hallum. Please proceed with your question.
Anthony Joseph Stoss: Hey, guys nice execution.
Speaker Change #137: My questions have been asked but Paul maybe I can follow up on do you expect any of your business segments to be down sequentially in July and then I guess maybe.
Speaker Change #138: Just a leading question on the October quarter or do you think revenues every business segments should be growing, especially now that you've mentioned this ERP should be growing.
Anthony Joseph Stoss: So I think in terms of segments down, we've kind of talked a little bit about some of the, you know, pausing that has a tendency to happen. You know, we'll get a rush of product out there, it's got to get built.
Speaker Change #139: So I think in terms of segments down we've kind of talked a little bit.
Speaker Change #139: About some of the.
Speaker Change #139: Pausing that has a tendency to happen.
Speaker Change #139: We will get a rush at a product out there. It's gotta get built so we're going to see some peaks and valleys on a quarter by quarter basis quite honestly I wouldn't say a segment is down we will have results that will vary quarter over quarter, but I wouldn't say a segment is down at this point because.
Paul H. Pickle: So we're going to see some peaks and valleys on a quarter by quarter basis. But quite honestly, I wouldn't say the segment is down. We'll have results that will vary quarter over quarter, but I wouldn't say a segment is down at this point because, you know, we're really kind of skipping off the bottom with a few few segments coming back. So, you know, telecom, the one thing I will say, telecom remains muted.
Speaker Change #139: We're really kind of skipping off the bottom.
Speaker Change #139: With a few few segments coming back so.
Paul H. Pickle: I'm, you know, we've got lots of good design activity out there, but I wouldn't actually start to get a bit more positive about it until I started to see some CapEx trends or budgeting trends in that space. And really, that starts to happen when 5G advanced starts to, you know, people start thinking about rolling that out.
Speaker Change #139: Telecom the one thing I will say telecom remains muted.
Speaker Change #139: We've got lots of good design activity out there, but I'm not going to I wouldn't actually.
Speaker Change #139: Starting to get a bit more positive about it until it started to see some capex trends are budgeting trends in that space.
Speaker Change #139: And really that starts to happen when <unk> advance.
Speaker Change #139: <unk> you know people start thinking.
Speaker Change #139: Thinking about rolling that out so right now that remains muted and I don't have any visibility at this point to report that would say.
Anthony Joseph Stoss: So right now, that remains muted, and I don't have any visibility at this point to report that would say, you know, that we're going to see a change anytime soon. But other than that, things are, things are clipping along. Laura, as a revenue number, is not quite there.
We're going to see a change anytime soon but other than that.
Speaker Change #139: Things are things are clipping along.
Paul H. Pickle: We reported positive POS, so that's a really good trend. We are seeing, and we are expecting those numbers to come up because it has been really off of a low, but I don't really have anything else that I would say is down. Got it.
Speaker Change #140: Laura as a revenue number is not quite there we reported positive Pos so that's a really good trend. We are seeing we are expecting those numbers to come up.
Because it has been really off of a low but I don't really have anything else that I would say is down.
Speaker Change #141: Got it and then just a quick follow up on the ACC side, you talked about qualifications are ongoing any sense of how much longer it's going to take.
Anthony Joseph Stoss: And then just a quick follow-up on the ACC side. You talked about qualifications being ongoing. Any sense of how much longer it's going to take? So, I think in my last call I said we'd know in the next two quarters. You know, we're reporting incremental progress with purchase orders at the cable manufacturers. I think we should hopefully find out in a quarter and have something to report.
Speaker Change #142: So I think in my last call I said, we know in the next two quarters.
We're reporting incremental progress with purchase orders at the cable manufacturers.
Speaker Change #142: I think we should hopefully find out in a quarter and have something to report.
Speaker Change #143: Very good thanks, guys.
Speaker Change #144: Thank you.
Paul H. Pickle: Thank you. And we have reached the end of the question and answer session. I'll now turn the call back over to Paul Pickle for his closing remarks.
Speaker Change #145: Thank you and we have reached the end of the question and answer session I'll now turn the call back over to Paul Pickle for closing remarks.
Paul H. Pickle: Thank you, Shalami. We appreciate you guys joining us today, and have a great evening.
Paul H. Pickle: Thank you Shlomi I appreciate you guys joining us today and have a great evening.
Operator: And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
Speaker Change #146: And this concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Speaker Change #146: Okay.
Hum.
Hum.
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Speaker Change #146: Yes.
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Speaker Change #146: Yeah.
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