Good afternoon. My name is Jesse, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Q3 fy19 Semtech Corporation Geebings Release. Thank you. Sandy Harrison, Director of Business Finance And Investor Relations, you may begin your conference.
Okay. Thank you, Jesse, and welcome to Semtech's conference call to discuss our financial results for the third quarter of fiscal year 2019. Speakers for today's call will be Mohan Mahaswaran, Semtech's press and Chief Executive Officer and Emeka Chuku, our Chief Financial Officer. A press release announcing our unaudited results was issued up the market close today and is available on our website at semtech.com. Today's call will include forward looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements.
For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor statement included in today's press release and in the other risk factors section of our most recent periodic reports filed with the Securities And Exchange Commission. As a reminder, comments made on today's call are current as of today only, and Semtech undertakes no obligation to update the information from this call, should facts or circumstances change. During the call, we will refer to non GAAP financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. Discussion of why the management team considers such non GAAP financial measures measures are included in today's press release. All references to financial results in Mohan's and Emeka's formal presentations on this call, refer to non GAAP measures unless otherwise noted.
With that, I will turn the call over to FEMTech's Chief Financial Officer, a Cachuca. Maka?
Thank you, Sandy. Good afternoon, everyone. For Q3 fiscal 2019, net sales were $173,500,000, a 6% sequential increase and a 15% increase from the same period a year ago. In Q3, she means into Asia represented 77% of net sales. North America represented 16% and Europe represented 7 percent.
Total direct sales represented approximately 31% and sales to distribution represented approximately 69%. Our distribution business remains balanced with 59% of the total POS coming from the high end consumer and the press computing end markets and 41% of total POS coming from the industrial and communications end markets. Q3 bookings softened from the record levels of the previous 2 quarters and resulted in a book to bill below 1. Sounds bookings accounted for approximately 37% of shipments during the quarter. Q3 GAAP gross margin came in as expected 61.4%.
And Q3 GAAP operating expense decreased 4% sequentially, mostly driven by reduction in the fair value of contingent earn out obligations. In Q4, we expect our GAAP operating expense to increase between dollars due to the nonrecurrence of the favorable one time items in Q3. In Q3, GAAP interest and dollar expense $31,200,000 compared during the quarter due to changing market expectations and changes in the competitive landscape. We concluded that the fair value of the equity in multi did not support the book value. As a result, we wrote down the entire $30,000,000 book value of the investment.
In Q3, GAAP benefit was 13.6 percent, driven by discrete benefits from transition taxes associated with the Tax Reform Act. For Q4 of twenty nineteen, we expect our GAAP tax provision to return to the normalized range of 19% to 23%. Modeling purposes, we expect our fiscal year 2020 tax rate to be in the same range. Moving on to the non GAAP result, which exclude the impact of share based compensation, amortization of acquired intangibles, acquisition related and other nonrecurring charges not tied the current operations. Note that as previously disclosed in our first quarter, we will no longer enjoy net sales for the impact of the Comcast wallet for any comparable historical periods presented.
Instead, we have provided a separate disclosure of the impact of the Comcast warrant on the financial statements in our Form 8 K filing and our press release. Q33 fiscal 2019 non GAAP gross margin increased 20 basis points sequentially to 61.7% as expected. And we expect Q4 non GAAP gross margin to increase by approximately 30 basis points to 62% at the midpoint of our guidance due to a we expect our gross margin to remain stable with an upward bias driven mostly by end market mix. The Q3 non GAAP operating expense increased 2% sequentially to 54 $300,000 in line with expectations. In Q4, we expect our non GAAP operating expense to decline between 2 percent to 6% due to lower compensation expense, partially offset by higher project spending.
Is to grow at approximately half year rate of revenue growth in fiscal year 2020. In Q3, our non GAAP tax rate was 16.5% in line with expectations. And we expect our Q4 non GAAP tax rate to be between 16% and 20%. We expect our fiscal year 2020 tax rate to be in the same range. In Q3, cash from operations increased 94% from the same period a year ago to $52,000,000 or 30 percent of net dollars.
Free cash flow was 28 percent of net sales and in line with our upwardly revised target range of 25% to 30 percent. Our cash and investments was $312,000,000, and our debt balance was approximately 2 $16,000,000, resulting in a net cash position of $96,000,000. We repurchased approximately $30,000,000 by stock during the quarter. Our stock repurchase authorization now stands at approximately $217,000,000. Use our cash to opportunistically repurchase our shares, make strategic investments and pay down our debt.
In Q3, accounts receivable increased 7% sequentially, driven by higher net sales and represented 43 days of sales, which is within our target range of 40 to 45 days. Net inventory in absolute dollar terms increased 4% sequentially and days of inventory decreased by 8 days to 82 days, which is well below our target range of 9 to 100 days. In Q4, we expect net inventory to be slightly up in absolute dollars and days, our we plan for the typical seasonal growth that we expect in the first half of headwinds. Our growth drivers remain robust and the operating model is demonstrating the leverage that is expected to drive cash flow generation to record levels in fiscal 2019. We believe our focus on execution positions us nicely to our record financial performance in fiscal year 2020.
I will now hand the call over to
Mohan. Thank you, Emeka. Good afternoon, everyone. I will discuss our Q3 fiscal year 2019 performance by end market and by product group, by our outlook for Q4 of fiscal year 2019. In Q3 of fiscal year 2019, net revenues increased 6% over the prior quarter to represent and In Q3 of fiscal year 2019, net revenues from the industrial end market increased over the prior quarter and represented 30 of net revenues.
The Enterprise computing end market increased over the prior quarter and represented 30% of total net revenues. Entered 29% of total net revenues. Approximately 20 9% was attributable percent of total net revenues. I will now discuss the performance of each of our product groups. In Q3, our fiscal year 2019, net revenues from our Signal Integrity Product group increased 2% over the prior quarter and represented of total and a new quarterly revenue record.
Our data center business continued its strength in Q3, led by demand for our industry leading ClearEdge CDR platforms for 100 gig NRZ optical modules. And active optical cables from 25 gigabit per second to 400 gigabit per second. This quarter, we will sample our recently announced Tri Edge CDR platform for PAM4 interfaces. This new low power and low cost CDR platform is targeted 200 gig and 400 gig PAM4 data center interconnects, which are expected to wrap in calendar year 2020 Our FiberEdge PMD platform, which is targeting 100 gig, 200 gig and 400 gig optical modules, is also sampling and also expected to ramp in calendar year 2020. Centric continues to benefit from its leadership in data center market.
In Q3, our PON business declined sequentially following a strong Q2 performance. ZTE continues to recover and reestablish its position in the pond market, and we expect them to perform better in calendar year 2019. In addition, leading 10 gig PON solutions for both the OLT and OANU over the next few years. Year record year for our PON business. In Q3 of fiscal year 2019, demand for our Wi space station solutions from both 4G and 5G systems increased.
We continue to see support for deployments, and are pleased to see the early demand for 5G solutions. We expect 5G deployments to ramp throughout calendar year 2019 with high volume deployments taking place in calendar year 2020. Our current expectation is that 5G base station volumes will be significantly higher than 4g. Semtech's ClearEdge, Tri Edge and FiberEdge solutions are well positioned to benefit from the 5G ramp as they offer best in class performance and power consumption for the rigorous demands of higher speed 5G wireless connectivity. For Q4 of fiscal year 2019, we net revenues from fiscal year 2019, net revenues from our protection product group increased 15% over the prior quarter and represented 31 percent of total net revenues.
The strong growth in Q3 was driven by strength from the Consumer And Industrial segments. In Q3, demand were protection products from our Korean, Chinese and North American smartphone customers, all increased over the prior quarter. Quarter, the consumer market saw noticeable growth in the proliferation end applications. In addition, our broad market protection business, which includes industrial, communication and automotive the devices with high speed interfaces. Longer term, we expect the diversification in our protection business to continue to drive a more balanced end market mix with lower handheld revenues, offset by higher industrial and communications revenues, which should result in higher gross margins for product group in the future.
In Q4 of fiscal year 2019, we expect our protection business to experience a strong than seasonal decline as our smartphone customers we expect several of our largest handheld customers to reduce their inventory as is customary for their year end activity. Turning to our wireless and sensing product group. In Q3 of fiscal year 2019, net revenues from our wireless and sensing product group increased 4% sequenced and achieved a new quarterly revenue record and represented 29% of total net revenues. Our LoRa enabled revenues increased over prior quarter and once again achieved a new quarterly record. For FY2019, our LoRa enabled revenues are currently to the lower end LoRa's rapid global acceptance as the best technology for low power IoT networks and the increasing number of IoT use cases using LoRa is contributing starts to transition from its embryonic state today to one of the largest segments within the IoT sector.
During Q3, we announced beta release of our first cloud based LoRa geolocation service. This is Semtech's first LoRa cloud microservice, and will be an important test for to demonstrate will be launched publicly in the second half of calendar year twenty nineteen and will be followed with other microservices office offerings. We believe our LoRa cloud cloud geolocation service will further enhance LoRa's position in the IoT market. By providing system developers the critical building blocks, tool and services needed to develop and quickly deliver compelling and more accurate LoRa based geolocation solutions to their end customers. Also in Q3 of FY19, we announced a strategic partnership with Alibaba.
At the recent Alibaba Cloud Computing Conference Alibaba announced its goal to have every enterprise adopt LoRa Technology, which should significantly span the LoRa Technology footprint in the China market. Initial target use cases include smart logistics and asset tracking, air quality monitoring, food safety compliance, and public safety applications. In conjunction with the conference, Alibaba demonstrate the extensive capabilities underground to 40,000 meters above ground. We expect more LoRa related announcements from Alibaba, Tencent and other alliance members in the near future. We also recently announced several real use cases and initiatives with our LoRa Alliance partners.
These include the following: SK Telecom in Korea announced the availability of Live Care, a LoRa based bio capsule that allows the monitoring of animal health in real time. Sensotera announced a LoRa based real time soil moisture measurement system for commercial farms with the goal of reducing water usage by 30%. Greenstream And Environmental Technology farm, helping to build safer communities, use LoRa to develop its autonomous flood sensor system while using monitoring more levels in coastal cities prone to plugs. Hepana, a technology company focused on smart water utility systems, incorporated LoRa Technology into Costco's distribution centers and anticipate saving Costco millions in water usage costs. Qisa Metering, a China based IoT solution developer, incorporated incorporated LoRa Technology into its smart utility metering products, enabling the optimization of energy usage, resulting in significant cost savings.
This X Safety, a smart prevention fire prevention company in Taiwan, incorporated LoRa Technology into its dynamic evacuation them, which helps people navigate through hazardous environments real time. These are just a few examples where LoRa Technology is being used to deliver unique value in global use cases. We continue to see many new LoRa use cases emerging as the excitement around LoRa continues to grow. As a result, our PUP pipeline of LoRa opportunities continues to exceed the FY2019. These include: 1, the deployments of public LoRaWAN Networks in 70 countries 2, the global deployment of 200,000 gateways, which include both macro and Picocell gateways that will provide the capacity to support over 1,000,000,000 end nodes.
We now believe we will end the year with at least 220,000 gateways deployed and 3, the deployment of over 18,000,000 more end nodes, which represents a 60% increase from approximately 50,000,000 end nodes deployed at the end of last fiscal year. Activity. In Q3 seventy sensing platforms are benefiting from the increasing number of high powered radios being integrated into handheld wearable devices and increasing regulations on radio energy transmission. We expect our proximity sensing business to continue to grow over the next several net sales from our wireless and sensing product group to decrease slightly as lower seasonal demand from our proximity sensing business is expected to offset continued growth 1 new products and achieved 2292 design wins. In Q3, we also achieved a record POS.
Now let me discuss our outlook for the fourth quarter of fiscal year 2019. Based on current bookings trends, normal seasonality, along
$155,000,000
165 $60,000,000, we needed net term orders of approximately 42% at the beginning of Q4. We expect that Q44 non GAAP earnings to be between $0.53 $0.57 per diluted share. I will now hand the call back to
Your first question comes from Tore Svanberg with Stifel. Your line is open.
Yes, thank you and congratulations on the record results. So, Mohan, first question, you talked about some weakness in smartphones. I was just wondering if you have any more visibility as to how long does the weakness will persist? This feel like a 1 quarter inventory adjustment? Or do you have any visibility beyond that?
Toreen, we only have really visibility for Q4. I would say, the, the thing that is noticeable is that it's across all regions. So we are seeing weakness in China smartphones, career smartphones, North America smartphones. So it's pretty much an industry wide smartphone weakness, I would say. You know, typically we do see Q4 as a softer quarter 4 smartphones, and then we see a bounce back in Q1.
Given that it's pretty global, I would probably suggest going to be a little bit longer, timeline before we see smartphone come back, but, I'll be speculating.
And as my follow-up question, you talked about LoRa Cloud Services, going into production second half of next calendar year. Could you maybe add some color on how material some of these contributions could be? Are we talking about minor or could these be some pretty programs that you generate revenues in for the second half?
Yes. It's a little bit unknown actually, to be honest with you, Tory, I think the key thing that we want to prove the value of, the cloud services in terms of getting accurate location, the ability to different, use different technologies to create that accuracy. So Laura Plus of technologies. And then, as we demonstrate that value, then it's a question of what are the use cases and how big they could be. You know, we have an ambition to grow our LoRa business to $500,000,000 than a $1,000,000,000.
And my hope is certainly that our cloud services business will contribute to that significantly, some 20%, 20%, 30% of those revenues, but that will take time. We're looking at 5 years out from
Your next question comes from Craig Ellis with B. Riley FBR. Your that's open.
Yes, thanks for taking the question and congratulations on the execution in a pretty dynamic environment up there. Mohan, I wanted to follow-up on some of the lower lower commentary. So nice to see that a lot of the metrics or really all of the metrics are on track for this year. But with regard to the funnel opportunity at $400,000,000, given what we're seeing on the macro, I'm wondering if you can help just to understand how some of the dynamics are playing out with the funnel. For example, have you seen any change in pacing with opportunities coming into the funnel It seems like the conversion rate is still about as you'd expected, about 50%.
Is that so And, and as you see, some of those funnel opportunities move into conversion, can you help us understand what some of the some of the endpoint size ranges are more classic analog, or are some of these turning into from what you can see high runner opportunities?
Yes. So quick, first of all, I would say, we haven't seen any real change. Nora and LP WAN relatively new, which is an emerging industry. And so it's a lot of new use cases and a lot of new applications. And a lot of them are actually, use cases that result in cost savings or efficiency improvements or, you know, optimization enhancements of energy, for example.
So we, I think, and my sense is that, regardless of the macro environment, the adoption of law, will continue to grow nicely. Having said that, I think there are definitely 2 camps. There's the camps of the kind of real, applications like metering and, you know, environmental and agriculture, that typically do take a longer time from opportunity to generating revenue. The nice thing about LoRa today is that we are starting to see use cases such as smart home, you know, tags, asset tracking, security, a cold chain, that are more, I would say, they're not consumer, but they're more tumorish in the sense that they could ramp to volume quite quickly, and they could, they could generate volumes quite quickly. And again, these are fairly new use cases appearing new applications of a new technology.
So I wouldn't anticipate, any loss of momentum, you know, given the current environment.
That's really helpful. I'll ask my next question to Emeka. Emeka, with regard to the gross margin outlook for the fiscal 4th quarter, very strong. Are there any special one time items in there? And if it's just mixed, What specifically is happening either on inter or intra segment mix that's giving you some nice uplift in the quarter?
Craig, is, is essentially what I in my prepared remarks, it is the end market mix. So if you look at the 4th quarter, we do have a lower mix of the handheld revenue, if you will. And as we go into the future years, we expect the continued growth from Laura, the optical business, you know, doing pretty well for us. And, so the end market mix definitely when you look at it in terms of where we expect to grow is supposed to come from, the higher gross margin businesses that we have.
That's helpful. And then my last And I think there was a reference in the inventory commentary to, building some inventory, for the, the first half of the fiscal year Can you help us understand to what extent is that just an expectation based on the historic seasonality of the business or is there order visibility or customer visibility that lends confidence that there seasonal recovery off of what was clearly a cyclical dynamic that's impacting industry. I'm not looking for guidance, but just for any, qualitative or quantitative color you can provide? Thanks, guys.
Yes. So, you know, our expectation, that's by what all the micro headway everything that the industry is experiencing right now is that we still expect to see some type of seasonal in the first half, I guess the issue is going to be how much, how strong is that growth going to be. So we have to prepare for that from our indications, from our channel partners. I think that's what they're telling us as well is that they expect to see some level of rebound to the business in the first half. If you look at everything that talked about the LoRa business that we expect to continue to grow.
Our Optical business is usually very strong in the first half of the year, and there is nothing so far indicate that that shouldn't be the case. I think our populous is very strong, base station looks like is is, is bouncing back, the data center business continues to be, to be quite robust. So there is nothing, despite the current environment points that would suggest that we should see some uplift in the first half of the year.
Your next question comes from harsh Kumar with Piper Jaffray. Your line is open.
Hey guys. Congratulations. Good execution and a tough environment. Mohan, I think a quarter ago on the last call, you had talked about China data center opportunity. I'm curious how that may be developing, with all that's going on politically.
Well, China continues to be a good opportunity for us and we continue to, look for ways to park and, designing our products. We tend to, as you know, all of our products are kind of high end, very high performance analog They're not easy to copy. They're not easy to replicate. So we've had Chinese competitors and other competitors trying to do the same thing for of our product lines for a long time now. But we keep moving as long as the market keeps moving, I think we'll be fine.
And then the question becomes is, how important e to those customers. And I think in China, from the data center side, you know, the midsize data center is not so much the really big hyperscale data centers like Google and Amazon and Facebook, but more the midsize data centers, Alibaba, Tencent, Baidu, I think our products are a really good fit, and timely. We have very good products that are available now to them. We have very good sales channel in China region. And so now my sense is that, it'll continue to do quite nicely, over the next few years.
Hey, and as my follow-up, Mohan, you mentioned, Laura did record in October. And then again, you're looking for pretty good growth in January sounds like. I'm curious how are your CDR products faring from October to the January timeframe. Is that an area that you're expecting to see growth overall or is that something that's caught up in the softness part?
You know, I think so we're coming off a record quarter. I remember, Harsh, so I think Q4, we're expecting it to be a similar type of quarter, but CDR products are doing extremely well, I would say for the 100 gig, more, more the higher bandwidth products. But, as I mentioned, one of the nice things that even for, as we see base stations now are probably going to deploy, some of the interfaces will require CDR functionality. Clearly the, the higher bandwidth connectivity within the data center, more, more of those modules we use CDR. So our CDR business continues to do quite nicely.
There's some, clear advantages we have with our technology in our view. And, both our ClearEdge and Tri Edge families, which I mentioned, we're just sampling now the PAM4 products, we believe, will be very
successful. Understood. Thanks guys.
Your next question comes from Mitch Steves with RBC Capital Markets.
Hey, guys. Thanks for taking my questions. So I just wanted to start kind of on a high level, full year commentary. I realize you had to take specific guidance. But when I look at 2020, can you maybe kind of help us in terms of is the growth rate going
to be similar to what we
saw in 'nineteen or should we down expectations given that the first half is seeing some consumer softness?
Well, that's a question that's to answer at this point in time, Mitch, because we just haven't got any visibility into the next four quarters beyond Q4. We will say that we would expect LoRa, obviously, to continue to do very well. And grow at very good rates. As Emeka mentioned, our optical business, we'd expect that to continue to grow very nicely. I think, Paul, we had a record year this year, given some of the dynamics there from ZTE going to be stronger next year, 10 gig, ramping up.
There's no reason why our PON business couldn't have a record year again. Our base station has been relatively weak this year. And as I mentioned, starting to see a little bit of pickup there. So maybe base station will do better next year. The unknown is really smartphones.
The mobility sector and how that's going to play out. This year has not been a good year. And as I mentioned, with all regions of the world, the smartphones are more regions, being relatively weak, it's difficult to call what next year is going to be. I would suggest it's probably going to be, you know, at best probably flat from this year. And so that's the challenge, but if you factor that in, I still think that for Semtech, at least we've got so many other growth drivers that, we should see a good growth year.
Got it. That's very helpful. And then secondly, just on the lower business historically you guys have talked about this coming year, so being FY 'twenty being similar growth rate since you guys are expecting to grow 90% this year, should we expect this $80,000,000 to grow at 90% next year as well, or has anything changed?
Nothing's changed. My expectation is going to grow very fast. It's going to grow very well. We have the opportunities. So we just have to convert the opportunities into revenues.
I'll give, for FY 'twenty next year, next quarter and give you an idea of where we think we'll end up. It's a dynamic market. Things are changing. And as I mentioned, so many use cases that could move the needle quickly, but some of them are more, industrial nature and some of them are more consumer issues. So The key thing for us on our, with our LoRa business is to continue to grow the deployments of gateways, continue to grow the deployments of end nodes, continue to deploy the number of people covered in the countries covered and to continue to have the allure clients drive, the, the LoRa technology across all the use cases in all these countries.
I think the revenues are just a result of, all of that activity, which is all positive at the moment.
Perfect. And then just one small one on the operating margin. Is it fair to assume exiting 2020, FY 2020, your margins will be up compared to this year. Is that a fair assumption given the mix changes?
I think that is a fair assumption given that we're expecting to continue to grow. We're expecting our gross margins to be flat, to up. We're expecting our plan versus to grow at a very reasonable rate. And so, you know, if all those happen, then yes, the operating margin should expand.
Okay, perfect. Thank you, guys.
Thank you. Your next question comes from Cody Acree of Loop Capital. Your line is open.
Yes, thank you. Take my questions and congratulations on the progress. Mohan, if we could just go back to your comments about broader demand weakness. It sounds like that has been relegated just to wireless. Are you seeing any pressures in your other segments, whether they're tariff related, and maybe how are you factoring that into your thinking?
Yes, I would say it's, smartphones, for sure, Cody. And I would say the broad market, you know, when you have, as part of the legacy business and our mature products, you know, being a little bit softer, that tells me that there's broad market weakness, but in parallel with that, we have, areas of strength. And so that's, that's kind of the way I would, look at it. From a tariffs standpoint, at this, from this this moment, I don't think there's any real impact to us. I mean, there's a lot of nervousness, uncertainty, customers, not sure about things and those type of uncertainties, which, is there in type of uncertain environment.
But I but in terms of a direct impact at this point, I don't think I can point to anything that specific specifically impacting our business. That could change, but at this point in time, I think it's a we're probably in a group of peers, the high performance analogs that have limited impact.
And I guess just as my follow-up, just on that same thought, are you seeing or in your discussions with customers, are you seeing any change in their buying patterns, whether it be distributors or direct players that are pulling in,
or is business continuing
as as normal given the uncertainties that we're seeing?
At this point in time, I couldn't call, I couldn't connect any type of behavioral change due to tariffs. I think if there is behavioral change, it's because of the uncertainty in the demand environment. In instance, uncertainty with the Christmas coming up and the Chinese New Year coming up and those type of things, end of year inventory. As I mentioned, smartphone across the board, all regions is fairly weak. So I don't think that's really related to, tariffs or anything like that.
So yeah, I I couldn't point to any type of behavioral change due to tariffs at this point.
Question comes from Stan Guerra with Baird. Your line is open.
Hi, good afternoon. A quick follow-up question. You talked about a little bit softness in some of your legacy mature products. Any color you could provide on the composition of those products and exposure as a percent of total revenue?
It's relatively small, on the, legacy side. Let me see if I can get you a number here. I would say probably in the order 4% 4% to 6 5 probably 6% down, down on the legacy side.
Is that a 5% of total revenue or is that the percent line that you're seeing year over year?
So from an annual standpoint, declining product is going to be down about 18% share. It's about percent of total revenues.
Okay. Great. That's very useful color. And then on the base station, side, and sorry, I missed the first few minutes of the call. Are you able to tell us the type of year over year growth you're seeing and whether you expect an acceleration of that growth next year from current level.
I know base station was weak earlier this year, but if you could provide a little bit more color on on that and the candidates that you see?
Yes, so base station for the year will be down from last year, Tristan. And that's what we had anticipated. We had projected beginning of the year base station would be down about 5%. And that's kind of where we're expecting the year to end Next year, we're expecting to start to see a pickup. And as I mentioned, was driven by 5G but we're also seeing 4G starting to pick up a little bit.
So we'll get a little bit of visibility of that in Q4. And then I think probably in first half of FY 'twenty, we should start to see that pick up momentum.
Okay. And last question was based station down year over year in the just reported quarter as well?
No, base station was up year over year.
Great. Thank you.
Your next question comes from Hamed Khorsand with W. S. Financial. Your line is open.
Hi. So first off, you said that the Laura is tracking toward lower end of your $80,000,000 to $100,000,000 expectation. Is that driven by the customer or is that a service provider that didn't match up to your initial expectations on this call?
No, I would say it's more just the transition of the to revenue. We have our opportunity to pipeline, convert, kind of figuring out and forecasting exactly how that converts into to revenue is difficult. If you go, back 3 years ago, I projected, the $80,000,000 to $100,000,000 3 years ago. And now we're here, to get to $80,000,000, I'm actually very pleased that we're at the lower end here. And projecting, and that's a 90% growth from last year.
So I think it's a phenomenal growth. I don't think you should get hung on the $80,000,000 to $100,000,000, I think you should focus on what's going to happen next year and beyond, with the momentum we have.
Okay. And then that was going to be my follow-up question is that given that you're suggesting gateways are still growing at pretty nice clip. Are you pretty much reliant on service providers to push the end notes higher for you? Is that you're expecting to happen in calendar 'nineteen to drive growth for LoRa?
Well, so remember, Laura doesn't rely only on service operators, So the gateways can be private networks, enterprise networks, in addition to the global operators. So anyone who builds up a net and then provides end nodes or connects end nodes to those gateways will drive demand for us. So I think it's a combination, Ahmed. Don't think it's one or the other. I think, we know of a fairly sizable, deployment that's going on in Europe now.
Quite a large number of gateways, and it's, I wouldn't call it an operator. It's more of an enterprise play.
Okay. Thank you.
Your next question comes from Scott Shirley with Roth Capital. Your line is open.
Hey,
I just wanted to clarify a couple of things and then had some follow ups. I thought you indicated 45% of the protection mix was related to non mobile industrial auto, etcetera, Is that correct? And then also, in terms of your comments and your outlook for fiscal 'twenty, it sounds like, modest expectations on the Smart phone front, but want to dissect that, is that purely for protection, or are you throwing proximity into that mix and your assumptions then related to non mobile protection and how that looks for, fiscal 2020?
Yes. So our, smartphone business consists of protection. And proximity sensing. And so if you combine the 2, the 2 of them, combine, it's about 21% of our total revenues. And so that's, and those, those, and that is impacted by the softness, both of them.
The protection and the proximity sensing are impacted by the, the softness in global smartphone, sales. Now within protection, our protection business handheld, which is mostly smartphone, is about 55% of the business, and about 45 percent is non handheld. And so, a significant impact, on the protection business due to smartphones. The non handheld piece, especially the ITA piece, which we call, which is really industrial Telecom Automotive, is growing quite nicely, is I mentioned, at a record quarter, it would probably grow 20% annually, and is the reason why the gross margins are also expanding. So That is a kind of a summary scope.
Okay, great. Very helpful. And then just to revisit lower, you had some comments related to, some geographic issues looking forward to, calendar 'nineteen, really focused on better geo coverage. I was wondering if you could provide a little bit of color in terms of what the geographic mix looks like today. I know China has been a big component.
Does that continue? And really from a geographic standpoint in 2019, what is the most important area that we need to have more coverage? Is it North America U. S? Or Europe, you had some big announcements there recently in terms of geographic coverage starting to roll out.
What's going to be most important in terms of driving that growth in calendar 'nineteen and beyond?
Yes. So there's 2 there's really 2 aspects to this, Scott. 1 is the what drives the revenue? I think we have enough coverage now. We have enough networks.
We have enough gateways out there, to generate enough use cases and driving up end, sensor connectivity to drive the revenue to have network deployment, both public and private, in all of the big regions of the world. And I would say that China is doing very well North America is starting to catch up. Europe has been doing well, but it's fragmented. Some countries still we have to penetrate. And then we're starting to see now for the time, I would say, other regions like India, South America, starting to get, really knowledgeable on LoRa and deploy real use case And so that's, for me, I think one of the most important things for us to monitor over the next 12 months is how much traction we're getting in, other regions of the world like, like South America and India.
But from a revenue standpoint, I think, the momentum is already there. I don't think we need to focus on, countries. I mean, we've got, I think, 70 countries now. It's very close to 70 countries, and 100 network operators in those 70 countries. So to me, I think we have enough momentum there.
Now it's a question of getting them connected.
Great. Thanks so much.
Your next question comes from Quinn Bolton with Needham And Company. Your line open.
Hey guys, thanks for taking my question. Moham, I just wanted to come back to the LoRa business. It sounds like the pipeline continues to build, if anything, if sounds like your conversion rate, you now expect it to be over 50%. So both of those moving in the right direction, is the should we be thinking about a roughly 2 year conversion period for that pipeline into revenue? Or is that where you see perhaps a bigger standard deviation or just greater volatility in terms of the timing of when that pipeline converts?
And then I've got a follow-up.
Yes, I think 2 years is about the right timeline, Quinn. I think, that's what we're we're just using data, right? We look at the data, and that's what we see. There are some use cases, in my opinion, that we can convert faster, 12 to 18 months. And there are others that will take, 24 to 36 months.
The more industrial use cases take a little bit longer, the more, consumer ish or industrial, but high volume tend to be fast we are going to see, as I mentioned, I think, the beginnings of, this year, starting with, the CES show, starting see, use cases related to the home and use cases related to, very high volume tags and things like that. So, that's going to happen in a discounted you, but we have to prove that.
Got it. Great.
And then the second question, with you guys writing down the value of multifi, is that partnership effectively now dead? Or if not, can you give us update on your kind of efforts in the data center market, to partner up the PAM DSP providers for your fiber edge family of products? Should we be thinking that you're still partnered with multifie, you just wrote down the value of that investment or might you consider now partnering with other DSP providers with the fiber Edge family? Thanks.
Well, the answer to that question is we will partner with other, and we are partnering with other DSP providers. We've never, since the relationship has now gone in a different path, multiply as an independent company and driving its own strategy, we are an equity owner in the company, but, from our standpoint, the reason why we decided not to continue with the and the acquisition was we felt that the architectural solution that we have is better and more suited for, the next 3 or 5 years in terms of what we believe the 100 gig, 200 gig and 400 gig solutions are going to need in the market, within the day center. So that was the reason. So yes, that was we don't really have any development plans with, with MultiFA at this point in time. Other than they would like to use our components on their reference design, we'd be happy to help them.
Your next question comes from Harsh Kumar with Piper Jaffray. Your line is open.
Us out here. I went back and looked at the April seasonality given your comments about uptick in the first half. And each of the last two years, there's one or the other segment that spikes up, but there wasn't any correlation from year to year. Curious based on what you see first half. You don't have to give us numbers, but just where you might be more excited than other areas?
Well, I think, I'll take each of the product lines. I mean, SIP, the Signal Integrity Product group for us, we are excited to see the re kind of re emergence of base station and some of the 5G momentum there. I think that's good. And that looks like it could, be a good, driver for us. The PON business, obviously, I mentioned 10 gig PON deployments and ZTE, who had a very unusual year, obviously, this year back, I think, is going to provide a little bit more momentum.
So in general, I would say civil integrity continues to be one area And then, of course, Laura, is obviously very exciting for us regardless of the timeline you choose just because the momentum and the things that are going on there. So those, the key ones, obviously, the smartphone area is tricky to call as they And I don't think we, are really that concerned about it, to be honest with you, I think it's more a question, okay, if that doesn't materialize and come back and we get the other growth what is it going to do for our margins and how is that going to help us? And that's kind of the focus we have at the moment, just because there's so many unknowns around smartphone. Business I think.
Further questions at this time.
Okay. In closing, we are very pleased with the record Q3 performance led by growth from the IoT, data center and mobile markets, our record revenue, record operating income, record earnings and record POS performance, along with our strong strategic positions in the IoT data center and mobile segments demonstrate that Semtech is uniquely positioned to outperform the market in FY2019 and in FY20 In addition, Laura's global adoption and momentum uniquely positions Semtech in the overall technology in stream. With that, we appreciate your continued support of Semtech and look forward to updating you on quarter.
This concludes today's conference call. You may now disconnect.