Good afternoon. My name is Sonia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation Q4 fiscal year 2018 earnings release conference call. All lines have been placed on mute to prevent any background noise After the speakers' remarks, there will be a question Thank you. Mr.
Sandy Harrison, Director of Business Finance And Investor Relations, you may begin your conference.
Thank you, operator, and welcome to Semtech's conference call to discuss our financial results for the fourth quarter fiscal year 2018. Speakers for today's call will be Mohan Maswaran, Semtech's President and Chief Executive Officer and Emeka Chuku, our Chief Financial Officer. A press release announcing our unaudited results was issued after the market closed 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 the risks and uncertainties, please review the safe harbor statement included in today's press release as well as 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 fax 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 useful, along with detailed reconciliations such non GAAP measures to the most comparable GAAP financial measures are included in today's press release. 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 Semtech's Chief Financial Officer, Emeka Chuka.
Emeka?
Thank you, Sandy. Good afternoon, everyone. For Q4 fiscal 2018, GAAP net sales were $140,600,000, a 6% sequential decline of flat through the same period a year ago. Q4 GAAP net sales included $1,500,000 of expense for the Comcast wallet. Fiscal 2018 GAAP net sales increased 8% over fiscal year 2017, to $587,800,000 and included $16,200,000 of expense for the Comcast warrant.
Q4 GAAP gross margin increased 120 basis points sequentially to 60.7% due to the lower sequential Comcast warrant expense. Q44 GAAP operating expense decreased approximately 1% sequentially due to lower equity compensation expense driven by lower levels of performance vesting and the lower stock price and lower variable compensation expense, offset by higher restructuring expenses. In Q4, interest and other expense was $3,200,000 compared to $800,000 in Q3. The increase reflects foreign exchange losses due to a weaker U. S.
Dollar and higher net liabilities denominated in foreign currencies. Q4 GAAP tax rate was approximately 112% compared to 19.5% in Q3 due to the transition tax associated with the U. S. Tax reform and revised plans for the use of overseas from the tactics associated with the transition to the new tax laws, we do not at this time expect the tax reform to have a significant impact on the results of our operations. For fiscal 2019, we expect our GAAP tax rates to be in the 19% to 23% range.
Moving on to the non GAAP results, which exclude the impact of share based compensation, amortization of acquired intangibles, acquisition and disposition related and other nonrecurring charges not tied to current operations. Q4 fiscal 2018 led sales of $142,100,000, came in at the high end of our guidance and represented a sequential decrease of 9% and flat with the same period a year ago. Fiscal year 2018 net sales were a record $604,100,000. An increase of 10% over the prior year driven by our diversified growth drivers. In Q4, shipments into Asia represented 75 percent of total net sales.
North America represented 18% and Europe represented 7%. Total net sales to distribution represented approximately 66% and the net sales represented approximately 34%. Q4 bookings increased nicely sequentially and resulted in a book to bill solidly above 1, Total bookings accounted for approximately 46% of shipments during the quarter. Q3 non GAAP gross margin was 61.4 percent, an increase of 10 basis points sequentially due to the seasonal decline in our consumer revenue. We expect our Q1 non GAAP gross margin to be approximately flat.
Q4 non GAAP operating expense was $51,300,000, down 3% from Q3, driven by lower variable compensation expenses. In Q1, we expect non GAAP operating expense to be flat to up 4% sequentially as a result of higher variable compensation expenses. As we highlighted in our last earnings call, we expect our non GAAP operating expenses for fiscal 2019 to be flat to modestly up sequentially and to average approximately $52,000,000 to 50 $4,000,000 per quarter. In Q4, our non GAAP tax rate decreased slightly to 12.9% from 14.1% in Q3, reflecting a true up of regional income assumptions. We expect fiscal 2019 tax rates to be between 16% 20%.
In Q4, cash flow from operations increased 23% to $33,000,000 or 23 percent of net sales. In Q4, approximately 69% of our cash and investments We are demonstrating international accounts and 31% was based in the U. S. We repurchased 130 1000 shares of $4,500,000 of our stock during the quarter and the outstanding stock repurchase authorization stands at approximately $47,000,000. We expect to use our cash to opportunistically repurchase our shares, pay down debt, and make strategic investments.
In Q4, accounts receivable decreased 20% sequentially due to lower net sales and more linear demand and represented 38 days of sales, which is below the target range of 40 to 45 days. Net inventory in absolute dollar terms was flat sequentially and increased by 8 days to 118 days above the target range of 90 to 100 days. In Q1, we expect our inventory to decline in both absolute dollars and days. In summary, We are pleased with our financial performance in fiscal 2018. On a non GAAP basis, our revenue grew 10% year over year, And due to expanding gross margins and diligent operating expense control, we grew our MS 3 times faster.
We believe our momentum entering into fiscal 2019, our focus on execution and growth from our differentiated growth engine positions us nicely to achieve record results again in fiscal year 2019. I will now hand the call over to Mohan.
Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year 2018 performance by end market, and by Product Group, discuss our fiscal year 2018 performance, and then provide our outlook for Q1 of fiscal year 2019. In Q4 of fiscal year 2018, non GAAP net revenues decreased 9% over the prior quarter to $142,100,000, driven by seasonal inventory reductions at our smartphone customers and softness in the China base station market. We posted non GAAP gross margin of 61.4 percent and non GAAP earnings per diluted share of $0.42.
In Q4 of fiscal year 2018, net revenues from the enterprise computing end market increased over the prior quarter and represented 34% of total net revenues. The high end consumer end market decreased over the prior quarter due to seasonality and represented 28% of total net revenues. Approximately 19% of high end consumer net revenues was attributable to mobile devices, and approximately 9% was attributable to other consumer systems. The industrial and communications end market declined over the prior quarter and represented 27% 11% of total net revenues respectively. I will now discuss the performance of each of Net revenues from our Signal Integrity Product Group was approximately flat with the prior quarter and represented 45% of total net revenues.
Strong 100 gigabit per second data center demand and the recovery in our plumbing demand was offset by ongoing weakness from our wireless base station customers. Demand for our PON products increased sequentially, led by our 2.5g and 10g PON Platts points. The stronger Q4 resulted in a record year for our PON business in FY 2018. We continue to see strong bookings from the PON segment suggesting that FY 2019 will be a much stronger year for our Pong business than previously anticipated and likely to result in another record year for our Pong business. Centech remains the PMD solutions leader in the 2.5G PON market, and we expect to maintain the same leadership position in the 10 g PON market.
PON deployments are global, but China remains the strongest end market for PON deployments. In Q4, our China base station business softened as we had show significant growth until 5G deployments begin sometime in the second half of this calendar year. In Q4, our data center Data Center business experienced stronger demand for our 100 gig CDR platforms. Semtech's industry leading ClearEdge CDR platform is enjoying broad based success in 100 gig optical modules as the faster data rates drive the need for increased signal integrity. Our latest ClearEdge platform, which integrates our high performance 25 gigabit per second CDRs with enhanced laser drivers and TiAs or SFP28 SR modules and active optical cables has strong design and traction.
We expect the increasing use of 100 gigabit per second links in new data center deployments to continue to drive growth for our CDR platform in FY2019. Our FiberEdge PMD platforms, which include a 100 gigabit per second linear driver, and TIA and provides a seamless interface to 100 gigabit per second PAM4 optics are complementary to our ClearEdge solutions. And are experiencing strong interest from customers developing 100 gig, 200 gig and 400 gig PAM4 optical modules. Last quarter, we announced the availability of the industry's first fully integrated DSP PMD Chipset, for single Lambda 100 gigabits per second pam for optical modules. This chipset combines our fiber edge PMD platform with multi phase DSP platform to deliver a fully optimized seamless solution for optical modules targeted at next generation hyperscale data centers.
Customer feedback has been very positive and we are expecting to see additional interest as our newly introduced optical platforms are being showcased at the Optical Fiber Conference taking place this week. We expect to maintain our leadership position in the 100 Gigabit per second optical market as some data center customers transition to 100 gigabits per second single lander PAM4 optical modules next year. In FY18, our signal integrity product is delivered record revenues, driven by record revenues from our CDR, PMD and ARM platforms, led by strong demand from data centers and pond systems. For Q1 of fiscal year 2019, based on strong bookings and a healthy starting backlog, we expect net revenues from our Signal Integrity Product Group to increase nicely. Led by stronger demand from the PON And Data Center markets.
Moving on to our Protection Product Group. Following 6 consecutive quarters of sequential growth, our protection business declined over the prior quarter. And represented 28% of total net revenues. Demand from our smartphone customers declined sequentially as our largest smartphone customer executed on their customary year end inventory reduction efforts. Centech continues to be the leading provider high performance protection platforms to the mobile device industry.
We believe that as device manufacturers use more advanced lithographies, They will increasingly require Centech Protection. Our Protection Product Group has been focused on diversification by expanding our product footprint across a broader range of market segments. Most recently, a growing number of industrial customers are designing in Centex Protection Products. For example, automotive customers are designing in our AECQ100 protection parts into automotive infotainment systems. Where the hostile environment of a vehicle presents unique protection challenges.
We have also seen very positive traction from some newly released platform including the R Clan0561Z or USB 3.1 Type C interfaces and HDMI 2.0 interfaces and the TCLAP to grow nicely over the prior year's results, led by diversification within the smartphone market, increased penetration at our largest smartphone customer, and the diversification Ethography protection and high speed interfaces across an increasing number of vertical markets is working and should help our protection product group deliver another year of strong growth in FY 2019. In Q1 of fiscal year 2019, we expect our protection business to rebound from the seasonally seasonally lower Q4, driven by growth from our smartphone and industrial customers. Turning to our wireless and sensing product group. In Q4 of fiscal year 2018, net revenues from our wireless and sensing products group decreased 19% sequentially. But increased 19% over the same period a year ago and represented 18% of total net revenues.
Seasonally lower demand from the consumer and industrial markets led to the anticipated sequential decline. In Q4 of fiscal year 2018, demand for our proximity sensing platforms decreased sequentially due to seasonal smartphone softness. Our sensing platforms continue to win new designs in tablets, smartphones and wearables across many different regions as regulations on managing radio energy transmission increase. We expect this secular trend to continue. In fiscal year 2018, our proximity sensing business achieved record revenues, and we anticipate another record in FY 2019.
In FY 2018, our LoRa business also achieved record revenues. Interest in our LoRa platform continues to exceed our expectations as we see broad global acceptance of LoRa as the technology of choice for low power wide area network applications. Cintech's LoRa enabled business achieved $42,000,000 in revenues in fiscal year 2018, and we remain on path to deliver between $80,000,000 $100,000,000 in revenues in FY2019. FY18 was another year where Semtech, along with our LoRa Alliance Part achieved many significant accomplishments and milestones. Here are 10 of the most significant milestones achieved in fiscal year 'eighteen.
1, the LoRa Alliance membership exceeded 500 companies worldwide, with members now addressing all layers of the LoRa value system. 2, LoRaWAN network trials for full deployments were announced in more than 50 countries worldwide. 3, the number of macro gateways deployed worldwide exceeded 70,000, which support greater than 350,000,000 end nodes 4, LoRa end nodes deployed now exceeds over 50,000,000 units. 5, we currently have over 1000 proof of concepts in progression and anticipate that these proof of concepts will translate to over $100,000,000 in design wins by year end. 6, the LoRaWAN Academy was launched and is expected to be a key resource to enable the global IoT developer community.
7, Comcast announced its decision to deploy a LoRaWAN network 30 cities in North America and has now completed the deployment in 5 major cities with 10 additional cities to be covered by the end of this calendar year. Comcast has also made the decision to deploy dense LoRaWAN networks where needed to support specific use cases. 8, Semtech announced the industry's first disposable LoRaWAN tag reference design for disposable LP WAN use cases. This tag is currently in development and expected to be available by theendofthisyear and opens up numerous new applications, including smart media, smart packages and smart it tracking. 9, La Kuna's space announced the first ever LoRaWAN transmissions from space.
As its partnership with the European Space Agency demonstrated the use of a LoRaWAN network using satellites. This space transmission demonstrates a lower range capability of over three hundred miles. And finally, 10 in FYA team, we signed 5 geolocation license agreements with Network operators. These are just a handful of the key milestones achieved in FY 2018. By the end of fiscal year 2019, we anticipate there will be over 200,000 gateways in total deployed which will include both macro and Picocell gateways.
This will provide the capacity to support over 1,000,000,000 end nodes. In addition, by the end of fiscal year 2019, we expect LoRa end nodes deployed to exceed 80,000,000 units. In FY 2019, we also expect to have 10 geolocation license agreements in place and expect to start receiving geolocation royalties towards the end of the year as many new along with our LoRa Alliance partners will drive LoRa to become the defector standard for global LP WAN use cases in what we think could be a multibillion unit industry in the next 5 years. For Q1 of fiscal year 2019, we expect net revenues from our wireless and sensing product group to increase significantly led by record quarterly bookings achieved in Q4. Turning to our power and high rail product group.
In Q4 of fiscal year 2018, our power and high reliability product group delivered its 3rd consecutive quarter of sequential growth and increased 5% sequentially and represented 9% of total net revenues. As part of group could be better leveraged by redirecting and focusing its efforts on supporting the exploding number of new initiatives and use cases associated with our LoRa related ecosystem. These initiatives are broad reaching and include opportunities in sensing, energy harvesting and rechargeable LoRa tags. As a result, we have reassigned our strategic technology development and marketing from our power and high rail product group to our wireless and sensing product group. Going forward, we will report the combined results under our wireless and sensing product group beginning in Q1 of fiscal year 2019.
In Q4, the total company distribution POS achieved a new quarterly record, increasing 6% from the prior quarter. Distributor inventory in Q4 decreased from 75 days in Q3 to 62 days in Q4 of fiscal year 2018. And remains well below our 70 to 80 day channel inventory model. Going forward, all revenues will be recognized on sell in to our distributors versus the hybrid model we used to report. As a result, we are reducing our channel inventory model to 60 to 70 days and will no longer report externally on our channel inventories or our distributor POS.
Our distributor business remains balanced with 60% of the total POS coming from high end consumer and enterprise computing end markets, and 40% of total POS coming from the industrial and communications end markets. Moving on to new products and design wins. In Q4 of fiscal 2018, we released 21 new products and achieved 2391 new design wins. Let me comment briefly on our fiscal year 2018 performance. In fiscal year 2018, Semtech delivered a record financial performance, total non GAAP net revenues increasing 10 percent over fiscal year 2017 to $604,000,000, led by strong momentum from our primary growth engines.
Our non GAAP earnings per diluted share increased 30% over the prior year. Which was three times the rate of our non GAAP revenue growth over the same period, demonstrating the leverage in our model. In FY 2018, we released 90 new product releases, and achieved a record 8694 new design wins. In FY 2018, our Signal Integrity Product Group achieved record net revenues, driven by record CVR, record PON and record PMD revenues. Our wireless and sensing product group grew 43% over FY 2017.
And also achieved record revenues, driven by record LoRa enabled revenues and record proximity sensing revenues. Finally, in FY2018, protection product group grew 18% to deliver a very strong annual performance. In FY 2018, we also acquired AptoeVision, adding over $150,000,000 to our sand. While it is early days, we have positive indicators that software defined video over ethernet will become the standard for Connected Pro Audio Visual Systems. And we believe that Semtech is in a strong position to lead this market.
In FY 2018, we also executed on a number of smaller strategic minority investments to help position us for future growth in our targeted growth markets. Our diverse product portfolio, diverse customer base, broad geographical strength and numerous exciting growth engines position Semtech very well to deliver what we believe will be another record financial performance for the company in fiscal year 2019. Now let me discuss our outlook for the first quarter of 2019. Based on the strength of recent bookings trends and our strong backlog, entering the quarter, we are currently estimating Q1 non GAAP net revenues to be between $147,000,000 and $153,000,000 to attain the midpoint of our non GAAP guidance range or approximately $150,000,000 we needed net turns orders of approximately 33 percent at the beginning of Q1. We expect our Q1 non GAAP earnings to be between $5.47 per diluted share.
I will now hand the call back to the operator, and Sandy and mek and I will be happy to answer any questions.
Your first question comes from the line of Cody Acree from Drexel Hamilton. Your line is open.
Thank you guys for taking my question and congrats on the progress. Mohan, with the the change in your inventory monitoring, can you just talk about how you're you're expecting the, to really keep an eye on the health of your inventory channel with everything going into a sell in recognition?
Well, we manage we wanted to channel inventory, Cody. It is something we have a model on. As I mentioned, we're bringing it down. We're bringing that model down this quarter. And, we'll we'll, we continue to monitor it, and manage it accordingly, but we just decided because we're recognizing everything on sell into the distributors that are actually reporting it externally, really didn't benefit anybody.
Right. So, Cody, just to add to that, we do receive from our distributors, both the inventory reports and the POS and we look at that on a weekly basis. So it is something that we definitely have always kept a very keen eye on to make sure that we understand what's going on with the channel.
And then just following up on that. So Samsung Ghost or your largest Korean customer goes through their typical end of year, rebalancing, but China contributed to a bit of that inventory volatility at the end of last year. Can you just talk about the channel and or the health of the Chinese protection inventory?
Yes, that's not so much channel question as it is a smartphone end of year question. And I think both your right career, both career end, China were weaker in Q4 as we had anticipated, stronger expecting it to be stronger in Q1 and anticipating the year to be reasonably strong. I would say more so Korea, North America, China is somewhat of an unknown.
And are you expecting to gain share in China? Are you picking up dollar content or are you just expecting unit volumes to drive that growth in China?
I would say it's more the latter, Cody. And I think that's because we're not sure if the China smartphone customers themselves will gain share in the marketplace. So that's one of the questions related to when you see why they actually, have not been doing so well in recent quarters. It's more because they've been losing share, not nothing to do with us losing share.
Great. Thank you guys and congrats.
Your next question comes from the line of Craig Ellis from B. Riley. Your line is open.
Hi guys. This is Plumbing calling in for Craig. Thanks for taking my questions. First, I wanted to circle back to your segment commentary and possibly get some additional insight into the signal integrity side of the business. With respect to the strength that you guys are seeing in data center and China infrastructure, and the kind of the base station push out, if I could call it that way.
Can you, how confident are you that the data center and the China infrastructure side of the business is going to offset the base station weakness that you're seeing? Any color there would be helpful.
Yes. So we had anticipated Q4 to be weak for China base station and for PON actually, it turned out that PON was stronger than we had anticipated. And I think that's true of Q1 as well. We anticipated that, this year for fiscal year 2019, PON was going to be a little bit weaker, but it turns out it's stronger. So starting off strong anyway.
So it gives us a little bit of confidence about the the whole year being a better year for PON. We're also hearing generally that China is, putting a lot more emphasis on, bandwidth high bandwidth connectivity to the home and enterprise. So that kind of validates the strength as well. The base station side continues to be weak. Has been for most of, for second half of FY twenty eighteen.
And we anticipate, as I said on the, prepared remarks that the we don't expect any kind of comeback until the second half of FY twenty nineteen. And data center, 100 gig data continues to be very strong, has continues to grow and all data points point to that business continuing to grow.
Thank you. That's very helpful. And then just on the protection side, when you look at the China smartphone market, are you seeing continued weakness there Is there any stabilization or any signs of a better market than you expected?
China smartphones, I would say, is still relatively weak. We don't see much strength there. The overall smartphone market, of course, Q1 is typically stronger than Q4, and that's what we're seeing. So no surprise there. We expect our Korean smartphone customers and North America smartphone customers to do better in Q1 than Q4, but China is still looking relatively soft.
Thank you. And then just one last on the modeling question on the OpEx trajectory. I know you mentioned a flat to slightly up for the fiscal year 2019, but is there, in terms of Q1 versus the first half versus the second half. Is there any more color that you could provide there on the OpEx trajectory?
Yes, I think, what I'll probably add is that, I give you a range of $52,000,000 to $54,000,000 per quarter. I think the 1st half will probably be more towards the lower end of that range and the 2nd half will probably be more towards the higher end of that range. That will be the expectation at this time. Yes.
Your next question comes from the line of Harsh Kumar from Piper Bradford. Your line is open.
Yeah, hey, guys. Congratulations, strong quarter, strong guide. I had a couple of questions. Mohan, in your data center end market, could you tell us about maybe the linearity in the quarter you just finished and reported And also how do you see the linearity of the business specifically to data center for the upcoming quarter or for the quarter we're in, which is April?
For Q4, I would say the linearity was, strong in the first period. Harsh and then strong in the last period. We had Chinese New Year in the middle of it there towards the end of it there. So that kind of always has a little bit of weakness, but then it picks up again towards the back end of January. And so that's kind of the way I would look at it.
And I think the, the feeling is that PON has definitely, is definitely coming back as you know, had stronger Q4. Is looking much stronger for Q1. And we would expect that to be fairly linear through this quarter. Certainly, it's been strong up to date and the same with data centers. So, the only segment that I would say is weak, as I as I mentioned, is base station continues to be a little bit weaker than we had thought.
Okay. Now, that's fair. And then, Mohan, I think you gave Laura as a percentage of business for the year, if I'm not mistaken, would you be able to disclose for us how much Laura was as a run rate of business exiting the fiscal year?
Exiting the fiscal year. What does that mean?
Exiting the fiscal year, Harsh, I think a lot of it was definitely on a run rate that was very close to the low end of the range that we have given for fiscal year 2019. Okay. It wasn't within the range, but it was close to the lower end of that range.
So let me understand. It's close to the lower end of basically $80,000,000 to $100,000,000. Is that correct?
Yes. Yes.
Okay, fair enough. And then, Mohan, so strong total business, you just I think, said that turns were 46% of business, but you only need 33%. How should I reconcile your guidance and then the sort of the room you have or the commentary on turns relative to what you're saying?
Well, we based on demand forecast, harsh, and we look at all the data points, the tons looks reasonable for us, obviously to achieve the numbers, but there's still, question marks on China and there's still a question marks on smartphones. So some turns need to happen there. I would say in general, we're feeling pretty good about, the first half of fiscal year twenty nineteen, for sure.
Got it. And my I promise my last question. You've so PAM4 is happening now. You're demoing it, I guess. And expected to happen at the end of the year.
You do have a relationship with MultiFi. I believe if I'm not mistaken, you have the right of first refusal to buy them. How do you would you be willing to answer on this call or to the specific question? How do you see this playing out, this relationship and that right of First Refusal playing out?
Well, our plan is to acquire them. We've made that clear in, the option comes in, June of this year. We have to make a decision at that point on the acquisition. This point in time, everything's looking pretty good. See, the revenues have pushed out, the whole 100 gig market and the whole PAM4 transition has moved out.
But from a technology standpoint, we think the DSP is a really good fit for us and the partnerships is a very positive one. So, yes, everything's looking quite positive on that front.
Hey guys, congratulations. Thank you so
much. Thank you.
Your next question comes from the line of Rick Schafer from Oppenheimer. Your line is open.
Yes, thanks guys. I guess I just have a couple of questions. First is just on PON. It sounds like that was really a pleasant surprise in the quarter and heading into 1Q. Can you give it the sense maybe of where the strength maybe was it a little more 2.5G?
Was it a little more 10G that's been that upgrade's been finally kind of kicking in? And then maybe as part of your answer, that's proven to be a really lumpy business for the last 2 or 3 years. I mean, can you give a sense of what sort of level of visibility you have there now? And is there anything that you're sort of able to do to to forecast that business, maybe a little better?
Well, I think, Rick, so let me let me comment first of all. I think the whole pawn market is doing better because China is putting a little bit more emphasis on bandwidth into the home and enterprises as I mentioned. So that's just a data point we have. We asked the same question. Why is this doing better than we had anticipated?
And that's the answer. The transition to 10 gig is clearly happening. I mean, that's the and I would say accelerating, which is good news. I think in general, With regards to the lumpiness, it's, I think, the same kind of issue with any type of infrastructure, you get a lot of infrastructure being deployed and then you'll have a break and then more CapEx being put in place. And so tough to call it.
The one thing I would say is that we have on the PON business and the base station business in China, we are being a lot more conservative in how we forecast the demand. And so, we would we won't be as aggressive going forward that we have learned also from that experience, I think.
And has anything changed on the particularly on Dintin GPON? Is anything changed on the competitive a competitive front?
No, I think it's the same set of competitors who are up against. There are some Asian competitors entering the marketplace, but I think the more the 2.5 gig and 1 gig space, 10 gig, we still feel that we have a very strong position.
And maybe just another question on protection this time, I mean, you guys obviously have several structural growth drivers there, that we see anyway for the foreseeable. But as automotive and industrial, those opportunities contribute more to mix over time as we move forward. Is there could you maybe talk about the gross margin profile of that business today? And if as those become a bigger piece of the mix, I mean, can you can we actually see the protection business kind of come up to maybe a corporate average type gross margin or any color you could there?
Yes. I think that so first of all, the consumer protection is definitely at the lower end of our gross margin range and industrial protection is well above the high end actually. So but the volumes are smaller. And we but we do anticipate over the next few years that industrial is going to become a bigger percentage of the protection business versus relative to the consumer business. So that's the expectation.
That's the strategy. That's why we're developing products that are targeted to that different markets outside the smartphone space, but it just takes longer. The good news, as I said on the in my remarks that we've got, good traction there. And I think there are some segments like the Automotive segment where our Protection products really fit well with the type of things that are going on activity applications within the vehicle that really do need our type of protection. So, yes, I think it's going to play out nicely and we expect the gross margins in the business gradually increase.
And then just maybe one last question on Laura. I know you've talked about 80 to 100 as sort of the forecast for this year. I mean, is obviously a big year for Laura. Maybe could you walk us through a couple of the milestones or what we should be watching this year to basically I'm curious what has to happen to sort of hit the high
end of that range, I guess.
Yes. Well, the key thing, so I talked about a lot of the milestones we achieved for FY 2018. And some of those, I think, are key milestones for FY 2019 also particularly the gateway deployments and then the number of end nodes. But I also mentioned, we have over 1000 POCs that are currently in play. And so it's now conversion of those POCs to real deployments.
A proof of concept is essentially, testing to see how the technology works, how the use case runs, are the customers ready to buy? And then once the POC converts to an actual use case in deployment, then we start to see revenues. And so it's conversion of those POCs is the key thing now. So we will spend time every time, we announce we will talk about the number of gateways, the number of end nodes that are being deployed and the conversion of POCs into real use cases.
Great. Thanks. Congrats on a good quarter.
Your next question comes from the line of Mitch Steves from RBC Capital Markets. Your line is open.
Hey guys, thanks for taking my questions. I had a quick question on Laura. It sounds like that's run rating close to $20,000,000 a quarter. Is there any seasonality in that business to be aware of? Or should we think that now that you guys at the endpoints deploy that the revenues could continue to accelerate sequentially?
Yes, we think it's, it shouldn't have much seasonality. I would say if there's going to be seasonality, it will probably be Q4 ish, more because of Chinese New Year and some of those Christmas things and people just not spending the time to, to convert POCs into, into network. So, but I would say in general, I wouldn't expect a lot of season Now there are some segments, Laura is very broad. Some of the application spaces are consumer ish, and others are more industrial ish.
But I
think in general, I would say very little seasonality at this point in time expected.
Okay, got it. And then secondly on the pawn business, it sounds like you guys are becoming much more positive on that. At least for FY 2019, exactly what changed in terms of the demand there and what kind of, what kind of difference are we talking from terms of a percentage basis relative to your original expectations?
Well, for this fiscal year, for fiscal year 9 fiscal year 2018 was a record year for our PON business. And then we had anticipated for fiscal year 2019 the business to be flat to down, down 5% actually, maybe even more than that. And now we're anticipating for the year that we're expecting Pawn to be flat to up. I don't know how much up, but that's a significant change in direction. And as I said, it's mostly driven by, confidence in China deployments increasing and the transition to 10 gig PON where we have a pretty unique position.
Perfect. Thank you.
Your next question comes from the line of Tristan Gerra from Baird. Your line is open.
Hi, good afternoon. Questions on the Comcast in relation to your LoRa new WAM. So, the warrant shares that Comcast is getting are contingent on the, on the Quest toxure wamp and you've mentioned 5 cities ramping. So is it fair to assume that there is a seamless transition. My understanding is that the existing agreement with Comcast in terms of the Warren shares was ending some time this coming quarter that this contract would be renewed as they continue to add cities to the network?
So, Kristin, no, actually, I think I just need to correct what you said. The Comcast, the the vesting of the Comcast warrants are supposed to probably end about a year from now in Q2 of fiscal year 2020. So it's not this current quarter or this quarter. We still have about a year, a year down and 3 months to go.
Okay. And then what happens next? Do they do they continue to ramp or is the expectation that they're going to reach 30 cities by then? And perhaps if you could give us some color as to how big Comcast is as a percent of your lower revenue currently?
So the goal, Tristan is for them to, at the end of that period to have deployed across 30 cities in North America. Of course, Comcast, the critical thing, the critical element of this network rollout is to identify the use cases that can generate revenue for them and for them to establish a footprint in North America and IoT. And so, we've given ourselves time and they've given themselves time to roll out the network. And in some cases, in some cities, they may decide to do what we call dense networks, which are requiring more gateways and more coverage. And in others, they may decide to do less.
Depending on use case and the demand. So that is the strategy, in terms of, how their thinking about this. And what was the second part of your question, Tristan?
Yes, just to kind of get a sense of how, what percentage of your total lower revenues coming from Comcast currently?
Yes. Currently, we don't have any revenue coming from the Comcast business directly. Obviously, they're still rolling out the networks. And so, the anticipation is once the networks are available, they will make that available to enterprises, to consumers, and that will start to generate revenue for us.
Okay. And then, you've talked about your expectation of, say, 5G related rebound later this year in base station. How do we quantify this and how do you see that rebound medium terms notably into calendar 2019. Is this going to be fairly gradual or do you see a big initial ramp as careers put MIMO based 5G antennas. How should we look at this in terms of an inflection point over the next year and a half
Yes. Well, I think, I would say our expectations are very modest, Tristan, at least from our perspective, our plan is that FY 2019 will be a down year for base station business. And it will just start to pick up a little bit in Q4 of this year. And then and then start to increase in FY 'twenty. I will say that the feedback I'm hearing at the moment is that there's starting to be a little bit more confidence in the second half of this fiscal year.
Obviously, this week is optical fiber conference, and so we're getting real time feedback and there was a little bit more confidence about the second half, but I don't think it's going to be massive. I think it's going to be modest this year.
Great. Thank you.
Your next question comes from the line of Hamed Khorsand from BWS Financial. Your line is open.
Hi, just a couple of questions here. As far as Laura is concerned, how fast is the are you seeing the rollout and go to actually end nodes with carriers? Or is it all these gateways that you're guiding to about $200,000 for this fiscal year? Is that all just still in development kind of phase?
Haminda, I think it's a combination of both. I mean, so the operators, the mobile operators network operators typically are rolling out more macro gateways. Then when they roll out the macro gateways, which is the vast majority of the gateways this year, then they have connectivity and then they start to drive use cases and then the end nodes get connected. But then there's a segment of the market, which is more private networks. And those networks tend to deploy both macro and picose cells.
And they drive faster time to deployment of end nodes. And so those tend to be enterprises and and consumer type of applications, smaller, small business type of applications. And that's moving fast as well. But I would say that once the operators are, have networks deployed like Comcast, then their ability to ramp up their, connectivity is exponentially much, much faster than any other approach. And so that's what we're hoping now that Comcast is rolling out here in Orange in Europe and Tartar and India and SoftBank as they start to roll out their networks and make the use cases available start to see a lot more acceleration in the end node connectivity.
What percentage of the 58 carriers that are deploying LoRa are in that phase in that Comcast like phase right now?
Of the 50, I would say probably about 40 of them are in the kind of deployment phase. I would say half 5 to 6 are fully deployed and now driving use cases and probably 4 are somewhere in between.
Okay. And my last question is on protection. We're seeing a little bit more traction on OLED side of First Smartphones. How much of that are you seeing, come up as far as your protection revenue is concerned?
Yes, we are seeing more adoption of OLED and that's beneficial to us. So that's a good thing. We just have to see how it plays out. Obviously, each smartphone manufacturer has their own transition to OLED and some are using more for it will move to OLED. That's our hope and our thinking as well.
Your next question comes from line of Quinn Bolton from Needham And Company. Your line is open.
Hey, guys. I'll echo my congratulations for the nice results and guidance. Well, I just wanted to come back to your milestones for Laura and fiscal 2019, I think you talked about, gateway is increasing from 70,000 plus to over 200,000. So nearly a tripling in gateways, but I think you said end user devices would go from $50,000,000 to $80,000,000, so only about 60% growth Is that just a lag effect that obviously you have to have the base stations before you see the endpoint? And I guess a second question is, if you're seeing, if that's the case, do you expect an acceleration in the endpoint devices as you look into calendar 2019 and beyond?
Yes. So let me answer it this way, Quinn. First of all, the 50 million units is a cumulative number. So it's what we've deployed over last 4 or 5 years. So the increase this year, we're expecting an additional 30,000,000 units will that's quite a substantial increase.
But remember, forecasting end node deployment is incredibly difficult because depends on the use case. You can have one use case that could be drive tens of millions of end nodes, right? So we are forecasting based on what we are hearing from our customers and the timing of when their proof of concept is transitioning over to full deployment. And that's what I was saying. That's really difficult to call that timing.
But we have over 1000 POCs in running now, and we estimate that certain percentage of those are going to go to full deployment. And if they do in a timely fashion, then we'll see it in FY 2019. If not, it will be FY 2020.
Okay. And second question, just many of us probably out at the OFC Joe, you talked about the single Lambda TAM platform. Can you just sort of talk to us where are you in terms of sampling both the 4 100 gig platform as well as a single channel 100 gig platform beyond your lead customers?
100 gig is sampling now. I mean, we are obviously sampling and talking to customers about 100 gig, both our the multi pie platform and our own fiber edge PMD products. On the 4 100 gig, we are tied to some strategic partnerships that we are executing on. And we won't talk openly about that until that's completed and we have established how we want to communicate to the market. But I would say the one thing to be caught sulfur in this whole market is that really it is a it's a timing question is when the market is going to transition over to 100 gig and 400 gig.
And what that means for the industry. Our sense is it's still probably a year away, maybe even a year and a half, two years away, But I think we're in pretty good shape in terms of delivering solutions to the customers. Great.
Then just last question for Mecca. It sounds like I think harsh picked up on this. You only need about 33% turns to hit the guidance, which which I think is a better starting backlog, than you might normally have. Wondering, first, is that right? Is it better starting backlog?
If so, is that does that tend to be a seasonal pattern, or are you just, is that backlog better than normal Thanks.
Yes, it's a little bit of everything, Quinn. It's definitely a very nice, starting backlog relative to where we have been in the last few quarters. There's also a certain amount of seasonality to it because typically as we've exited 4th quarter going into the 1st quarter, our bookings, especially in the optical business has been very strong. And so we're seeing, we're seeing that effect again, but is definitely a much nicer position to be in.
There are no further questions at this time. I'll turn the call back over to the presenters.
In closing, fiscal year 2018 was an exciting year for Centec as we delivered a record financial performance. We are off to a solid start in FY2019, and we are expecting several of our product groups to again achieve record results in FY2019, and help advance the company along its path of getting to $1,000,000,000 in net revenues. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you.
This concludes today's conference call. You may now disconnect.