My name is John Vinh. I cover semis here at KeyBanc Capital Markets. We're pleased to have Venk Nathamuni, CFO, and Carl Alberty, VP of Mixed-Signal Products at Cirrus Logic. Welcome, guys.
Thanks for having us, John.
Thank you.
Maybe, Venk, maybe we can just start with your results. You know, results in the quarter, and the guidance was very solid. It was kind of interesting that, you know, results from your largest customer was maybe on the lighter side. I'm just wondering if you could just help us reconcile your strong results versus kind of maybe what your largest customer is seeing.
Perfect. Thanks, John, thanks for inviting us. Thanks for everybody who's here at the conference room and also everybody on the webcast. To answer, John, your question about the results, we announced our results last Thursday, right after our top customer announced their results. At a very high level, as John pointed out, we came in at, you know, very close to the high end of the guidance range, and that was driven primarily by two factors. One is, as it relates to our top customer's business, obviously, the units came in better than we expected when we gave the guidance.
Another aspect of it is also the fact that, you know, we've been increasing content in those phones, so even to the extent that a few million units are better than expected, that shows up in the results in a meaningful way. The other aspect of the business, which is essentially non-smartphone related, that, as I've stated in past quarters, that's gone through some sort of an inventory correction and general weakness. We're not seeing major signs of it coming back yet, it is at least stabilized. The combination of both the stabilization in the non-Apple business, as well as what we did with the top customer, those were primary drivers of the upside in the quarter.
To your other question about what, you know, the somewhat of a disparity between what our customer reported and what we reported, I would say it's always difficult to have a one-to-one correlation because there's a lot of differences in terms of the timing. Clearly, there's a lot of lead time associated with when the customer places orders with us and when we ship those products. I think if you look at it over a longer period of time, you'll see some good correlation, but any given quarter, there's lots of puts and takes in terms of the performance. Overall, we're very pleased with how we came in relative to our guidance, and obviously, from a, you know, guidance standpoint for the September quarter, we feel pretty good about it as well.
Great. Thank you. The other thing I wanted to ask you, Venk, you know, you talked about, kind of a, kind of an OpEx reduction in an 8-K that you'd filed in mid-July, that obviously people were kind of fearing the worst there, investors were fearing the worst, and, you know, your numbers came in quite strongly, as we talked about. I'm wondering if you could just help us better understand this kind of OpEx reduction that you had, you announced?
Yeah, John, I'm happy to, to address the OpEx question in just a second, but I thought, just for the benefit of everybody here, at a high level, and if you look at the strategy for Cirrus, right, with 3 major pillars of the strategy, one is, you know, be a solid supplier in audio for smartphones, which we have done and demonstrated over the last 15, 20 years. Second pillar of the strategy is to grow the content in smartphones with new technologies like high-performance mixed-signal. Then the third aspect of it is how do we take the audio and HPMS capabilities and spread it across, you know, new end markets and such, right, and new applications.
From a strategy standpoint, we're absolutely clear in terms of what drives the growth of the company, is the continued investment in R&D, both in terms of the, you know, doubling down in the positions where we're already strong, but also in investing in new areas. From that perspective, when you look at the, the, the action that we took, and we announced a couple of weeks prior to the earnings call, we are obviously cognizant of the fact that, you know, with the particular change in our revenue picture in the short term, that we had to make some changes that will align our cost structure with the, with the revenue outlook that we have. Suffice it to say that we've tried to be as thoughtful as possible in terms of how we implemented those actions.
One, one of the things that came up on the earnings call last week, which I alluded to, is the fact that even though we had those, those reductions, the total R&D that we're going to spend in fiscal twenty-four compared to fiscal twenty-three is still pretty solid. Whatever those cuts will manifest primarily on the SG&A side, you know, clearly we want to improve our operational efficiency over time and structure the, the business such that, you know, we can continue to do a lot of good things in terms of investments, in terms of growing the, the top line over time, but ensuring that we're also doing it in a profitable fashion.
Yeah, just to, to emphasize what Venk's talking about from a like, the principles that guide our product investments and our strategy, those are all, you know, unchanged. Obviously, we went into this process, you know, to evaluate, you know, any impacts on, you know, our ability to staff and execute the programs that we think will bring opportunity for us to grow over time. We don't think there's, there's gonna be any sort of impact relative to the product strategy and what we're investing in from a growth perspective, not only in audio, but obviously the HPMS as well. To, and to Venk's point, I mean, as a company like Cirrus, being able to, you know, reinvest and, you know, kind of keep really driving innovation in R&D is critical, and we think we can keep doing that.
Great. I think there's also kind of a question of whether the OpEx reductions that you guys announced are related to this HPMS feature that's not gonna be in this year's kind of flagship phone. Is that kind of the right way to think about it, that, that this is likely not gonna come back at some point?
Yeah, I'm actually glad you asked the question. First of all, in terms of the, the, the, the, the cuts that we discussed, you know, those were somewhat driven by the fact that we're not getting the revenue, and as we said on the earnings call, we've taken it out of the model from a revenue perspective. In terms of the cuts. You know, the way to think about it is, we're continuing to invest in R&D and the product lines. We don't have perfect visibility into what our customers' plans are, but suffice it to say that the IP that we built there is absolutely highly differentiated and very unique. We do see down the road, the opportunity to implement that IP in other applications as well over time.
In terms of the specific timing of this, you know, we're not in a position to talk about what our customers' plans are, and to be honest, we're not privy to what those customers' plans are. Paulie?
Yeah, that's right.
Yep, just also just following up to this, I thought, Venk, I thought it was pretty interesting that you had talked about that you had come to a resolution on your wafer commitments as well as your in-process wafers. It sounds like there was kind of a resolution with your customers as well as with GlobalFoundries. It sounded like part of the resolution was that you were able to then repurpose this capacity to other HPMS components at 55 nm. I think you mentioned amps, haptics, you know, battery and power ICs. What I really want to understand here is, is, is what you're talking about is because these analog process parts have long lives, that you feel that you're basically gonna be able to just build inventory to kind of honor these wafer commitments?
have you actually negotiated with some of your foundry partners to kind of push out the timing of those wafer commitments?
Well, that's a multifaceted question.
Yeah.
I'll, I'll start with some of the higher-level stuff, and Carl can add a lot more specifics with both on the customer side as well as on the foundry side. First, first thing I wanna make an observation is, you know, regardless of what happened with this particular product, our relationship with this customer is top-notch. I mean, we have such a collaborative agreement with this customer. If you look at the history of what we have done with that customer and, what the customer has done for us in terms of the content growth over time, I've mentioned this on previous calls, where we've gone from maybe 3, 4 components in, you know, their flagship phones to some, you know, close to 8 or 9 in some of the high-end phones, right?
That's that, that collaboration and cooperation and, and customer intimacy is absolutely intact, 'cause that's the first thing to keep in mind. As it relates to the, the supplier agreement, again, we have a really strong relationship with this particular supplier, and we've signed a five-year contract with them, and we're working collaboratively with them as well. As it relates to this particular component that is no longer gonna ship in, in fall, as we originally hoped, what's, what's transpired in the last few months is we have worked in conjunction with both the customer as well as the supplier in dispositioning those wafers such that there won't be a material financial impact to, to our, you know, to our reporting, right?
I think that's an indication, again, of the nature of our engagement with the customer as well as with the supplier in being able to disposition those wafers. It's not. Nothing is cast in stone. We... You know, with the information that we have and with the engagement that we've had, we feel comfortable that, you know, we don't expect a material financial impact on those wafers. As it relates to your other question about overall inventory situation, you might recall that over the last couple of years, we've been living in a hand-to-mouth existence as it relates to inventory. It's been unusually low. I mean, some quarters, we're down to, like, 45 days, 50 days of inventory, where what's more typical is in a 100-plus days, right?
Even a couple of quarters ago, we talked on the earnings call that our plan is to increase our inventory for those, for those products, because to your point, John, they are all products that have very long lives, very sticky. They've been selling for multiple generations of our end customers' products. The fact that we want to be able to service our customer more promptly, we have started down this path of increasing the inventory for those parts. You know, with the, with this HPMS component, clearly there is now some inventory that is in excess of what we had originally planned. Again, to the fact that these are long-lived products and, and we have good visibility on those products, we feel comfortable that we can manage the inventory through the coming quarters.
As we mentioned in the earnings call, the current quarter for us will be the high point in terms of dollars of inventory. From a days perspective, it'll start declining because obviously our revenue line is substantially higher this quarter than last quarter, and the COGS is higher and so forth. You'll see that the days of inventory will come down meaningfully over the remainder of the fiscal year. I'll turn to Carl to give some more color on our engagement with the wafer supplier and also with the customer.
Yeah, John, it's probably worth just remembering that the agreement we have with Global is technology specific, not product specific. Yeah, as we talked, we build a number of products from our audio, you know, amplifiers line, our haptic drivers, the power conversion. Just there's a pretty broad section of products that we ship out of that technology node, so we do have the flexibility to build up a particular mix based on demand. Obviously, there's, there's some flexibility built into that, given the nature of the agreement. You also might recall that that agreement tapers down over time. We're obviously working closely with the customer and the supplier to kind of look at the shape and the timing for what we need and when we need it.
We feel good about how those conversations are, are moving at the moment. Obviously, we've got new products in development that'll spur, you know, growth in the future. You know, with the way we structured that deal, meaning it tapers down over time, there will clearly be need for us to, you know, secure more capacity. Obviously, with each supplier, there are different types of agreements and, you know, arrangements by which we get comfortable with the capacity and, and manage that risk. I think thus far, we're pretty happy with where things have gotten to in terms of that flexibility and, kind of reshaping the, you know, the needs of the business, with new products and having that flexibility to kind of look across products in terms of how we build.
Obviously, having some products that have run for years and have a strong, you know, outlook to run for multiple cycles, gives us the opportunity and that flexibility to, to kind of build up certain things that will run for a long period of time. Again, just the overall shape for the coming few years is something that we feel, is moving in the right direction.
Great.
... I'm wondering if you guys could maybe talk about how we think about growth for you guys next year, right? I think you've talked about that you've kicked out and, and started sampling a 22 nm codec, next-gen codec. I think you also talked about sampling next-gen amplifiers. Are those gonna be the two primary key drivers of growth for you next year? Because I know the HPMS feature was expected to be kind of a key growth driver this year, and, you know, obviously, let's just assume that it's just out of the model, so it's not gonna come in next year. Are, are those gonna be the building blocks of growth, or are there other kind of growth factors that we should be thinking about, for next year?
Yeah. I mean, obviously, we give guidance 1 quarter at a time, but I'll just give you more color around what we think would be some of the key drivers longer term. I think you hit a lot of the key points there. We've talked in prior quarters about introducing new products or I should say, next generation components of existing products, in some cases, at more advanced nodes, in some cases, in the same node. Two of those that you alluded to, one is a codec, the 22 nm codec, which we've been shipping for multiple years, and now we're expecting to go to the next generation of that product, to be introduced sometime next calendar year.
Think of it as an incremental uplift in terms of ASP, because it's on a higher process node, more value and such. Then, if you look at the, the amplifier products, that's also going to the next generation, and that is, actually, there are 3 instantiations of those amplifiers expected to happen in the next generation phones as well. Those are the, the, the 2 primary categories. In addition, we've talked, you know, in this calendar year, we do expect to have a next-generation camera controller as well, and so you'll see some linear progression of camera controllers being implemented in our customers' products over time. Those are at, at a very high level, what should be driving our growth.
You know, longer term, we also have the opportunity, we've talked about this on the calls where we've got maybe 70 design wins in fiscal 2023 in the PC/laptop market. We actually announced another 45 design wins so far in this fiscal year. We have a lot of growth, you know, ahead of us in terms of the opportunities, both within the smartphone market as well as expansion in laptops. Obviously, the laptop space will take longer to materialize in terms of meaningful revenue, but the design wins are there. Whenever the laptop market comes back, we will participate meaningfully in that, in that opportunity.
Yeah, and just to follow on, I mean, as Venk pointed out, we're, you know, it's, it gets harder and harder to look at, you know, overall attach rates and mix and, you know, just given the, you know, the kind of scope of where we ship. Obviously, as you introduce new products or, you know, in a % of total units, and as you go into the subsequent year, you get the kind of tailwind associated with that. Obviously, we're excited to be, you know, in the process of ramping, our third generation closed-loop controller, and obviously feel good about the value that both the next generation codec and amplifier bring to the customer, in terms of performance, efficiency, system solution sizing, and attributes that they care quite a bit about.
Obviously, long term, the ... Again, like, the product strategy that's driving our kind of growth opportunities is really as it was. Obviously, there's been a, you know, a bit of a setback relative to the new HPMS component we've talked about. That being a, you know, an anomaly, we feel really good about the opportunities in front of us for growing and expanding the HPMS content, in a way that it kind of offsets the dependency on units in the market, which obviously applies both to handsets and to laptops. Then, obviously, the longer-term view is this, this diversification effort to really grow and introduce not only audio, but HPMS components into, you know, markets beyond smartphones and mobile devices.
Got it.
John, if I could just, you know, one other thing. You know, we, we spend a lot of time talking about our smartphone business and, and now, you know, increasingly laptops. Another element of our business, which actually is pretty solid from the standpoint of both stickiness as well as offering long-term growth opportunity for us, is in the general purpose market. You know, we have a catalog business where, again, we've talked in the last couple of quarters about refreshing parts of that portfolio, so we have much more of a platform approach. That's an opportunity for us to expand our footprint and our SAM in areas like prosumer and industrial and automotive and such.
You know, clearly, they're not at a point where we can break out the revenue contribution, but suffice it to say, it's a great area of focus for us from the standpoint of long-term growth, and also from the standpoint of expanding profitability over time.
Right. Carl, one thing I wanted to clarify, when you think about kind of the longer term growth opportunities around HPMS, right? You've got kind of three major subsegments. There's haptics drivers, haptics drivers, amplifiers, closed-loop controllers, camera controllers, and then you've got Power, power conversion ICs. When you think about the growth prospects of that longer term, is it primarily outside of mobile, or do you still see kind of, you know, medium to longer term growth opportunities within mobile? If, if there are, can you just, at a high level, just talk about what's, what's driving kind of those opportunities?
Yeah. I mean, certainly we see the growth opportunities in HPMS to be both mobile and kind of consumer-related, so mobile, laptops and, you know, things of that nature, as well as moving beyond smartphones into other applications, that Venk talked, touched on a little bit. Obviously, we have a core foundational technology footprint with audio, and, you know, and more and more with things like haptics and sensing. Then, obviously, further out in time for, you know, somebody like Cirrus, you know, we, we don't have a huge, you know, business for the power and battery-related technologies outside of what we've talked about with our biggest customer. Certainly, you know, the opportunity for us to leverage some of the IP we've developed into new applications is part of the long-term, long-term plan.
No doubt, the near-term opportunities for us to expand and grow, are still rather attractive and meaningful from a customer pull perspective in the, the kind of three categories that you mentioned. In particular, the, the closed-loop controllers, that roadmap's quite robust. There's still a great amount of collaboration, you know, around the roadmap. Clearly, there are, you know, good, valuable problems to be solving in that space. Again, the, the power and battery stuff for us is, is fairly, you know, small in terms of our footprint and the reach, but there's a lot of activity and a lot of really interesting drivers for long-term growth, you know, prospecting that we feel really good about. It obviously, you know, builds beyond smartphones, so that's exciting for us.
Great.
Yeah.
Yeah, maybe we can talk a little bit about some of these non-smartphone opportunities. You know, I think you've increasingly been focused on kind of the PC market. You know, I think, I think at a high level, you've articulated that a PC looks, in many ways, like a smartphone, that has some of the same building blocks that you're supplying into mobile. Maybe can you talk about what the potential content opportunity for that is, and, and maybe what the TAM is associated with the PC notebook market?
Yeah. I mean, you're right to kinda characterize some of the challenges in PC. They look a lot like problems that we've experienced and kinda built really great solutions around for handsets. With respect to thinning form factors, you know, less physical space to move speakers and, you know, coupled with the strong pull for much better audio and video, kinda voice-related experiences for users, kinda positions us really well to capitalize on the knowledge and the capabilities we've built in phones over the last decade, with a stronger demand for better audio and better user experiences, you know, driven and fueled by people, you know, remote working and just that experience being a much more prevalent use case.
Obviously, we think it, it extends beyond that, just the opportunities for just much more efficient, you know, power design, system design, and just how things, you know, deal with thinning form factors and, you know, just more constraint around the battery itself. Yeah.
What can you talk about what's, what's kind of the potential content opportunity for you in PCs? Then I just wanted to clarify, is the market that you're focused on within PCs, is it kinda more the, the high-end segment of the PC notebook market?
Yeah, obviously, we're working closely with customers to align on mutual value, which we do see in the kinda middle parts of the market and upward. I mean, certainly, there won't be a great fit for, you know, some of the really more cost-sensitive, lower-end applications, but, you know, working closely with customers to kind of, you know, balance and offset or to balance the, you know, the, the way in which we go approach, you know, solving some of these problems together. Certainly, you know, there's a range of, you know, models where you could see anywhere from 2 to 6 channels of kinda output drivers, just depending on the configuration.
You know, certainly there are, you know, voice and other codec-related functionality that we see in a lot of those markets as well, or a lot of those, you know, those models. Longer term, you know, the move to, you know, less mechanical switches, you know, presents opportunities for sensing and haptic-related products. You know, beyond that is some of the more power-efficient, you know, you know, point to load and other kinda battery and power-related opportunities that we think could layer on top of the audio over time. We see dollars of content, you know, you know, cutting across our existing products, that we think will serve as a, you know, pretty good part of that market.
For us, starting from basically zero, you know, it represents a great opportunity for us to go drive kinda, you know, near and midterm, you know, opportunities with products that have been kinda repurposed from mobile, and then, obviously, some application-specific products we've just started sampling and introducing. That, coupled with some of the really great collaboration with some of the industry platform partners, you know, as we, you know, talked about in our most recent press announcement, just kinda developing that ecosystem of partnership around some of these new components and the new interfaces, combined with the pull for better solutions, both from a power and audio perspective, make that a pretty attractive space for us.
Great. Maybe even switch to Android. What, what are you kind of focusing on in terms of growing content on Android? What are gonna be the key drivers of growth in the Android space over the next couple of years?
I mean, really, our Android position is, is largely as it has been. We're really focused on the high-tier parts of that market with the top customers, so more of a flagship focus. There's certainly some headwinds in that, in the Android market, you know, for sure. It doesn't represent, you know, a really material investment area for us as a company. Obviously, we have really well-established customers and, you know, really good technology to service the high-end parts of the market. The, the kinda other parts of that market are, are not, super attractive for us from a overall revenue perspective and, and investment perspective. Certainly, the, the, the audio and, and haptics-related, you know, components and, and technology we do have for the high-end parts of that market remain kinda best in class.
We remain super collaborative with key customers in that space to kinda, you know, you know, maintain those sockets and drive it forward.
Just to add to Carl's point, we, we'll continue to service those customers in the best way possible and continue to make those investments, but going to the lower end of the market is not something that we're too excited about.
Yeah. Great. Any questions? Great. Vik, maybe we can just talk about gross margins. Just how are you thinking about kinda gross margins longer term? I, I would imagine that as you increasingly focus on HPMS and start to diversify outside of maybe iOS, are there opportunities for your gross margins to kinda trend higher here, or, or what are the puts and takes there?
Yeah, no, great, great question. I would say, John, as you can tell, you know, we've been fairly efficient in terms of operating at the, call it, 50% ±, over the last several years. Just given the long-term nature of our engagement, both with our customer, key customer, as well as with the foundry suppliers, I think you can think of gross margin being fairly stable at these levels for, for some time. However, having said that, we are continuing to expand into other markets. We are diversifying into kind of the general purpose catalog business that I alluded to earlier, and those typically tend to be higher profitability than, than corporate average. That's kind of a typical analog, mixed-signal end, end market exposure, like industrial and automotive and such.
That's an area that we're making significant investments into. Obviously, it takes a while for that to materialize, but the good news about that particular market is it's very sticky. You can, you know, get revenue for multiple years, in some cases, 10+ years. On top of it, the profitability is where we want it to be long term. Longer term horizon, we, we do see the opportunity as we expand into other markets to improve the gross margins, but in the short term, think of it being in the 50%, ±.
Great. Thanks, guys. Looks like we're out of time.
Perfect.
Appreciate it.
Thank you so much.