Greetings. Welcome to the Semtech Corporation Quarter 2 Fiscal Year 2022 Earnings Call. At this time, all participants are in a telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, Sandy Harrison.
You may begin.
Thank you, John, a listen and welcome to Semtech's conference call to discuss our Q2 fiscal year 'twenty two results. Speakers for today's call will be Mohan Mahaswaran, a listen only mode. Semtech's President and Chief Executive Officer and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results listen only mode. This conference call is issued after 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 a listen only mode 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 that's included in today's press release a listen only mode and in the other risk factors section of our most recent periodic supports filed with the 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 the call a listen only mode. All references made to financial results in Mohan's and Emeka's prepared remarks a listen only mode. During this call, we refer to non GAAP financial measures unless otherwise noted.
A discussion of why the management team considers such non GAAP financial measures useful, a listen only mode, along with detailed reconciliations of such non GAAP measures to the most comparable GAAP financial measures are included in today's press release.
A listen only mode.
I want to also highlight that Semtech will be hosting its first ever tech topic webinar that is scheduled for Wednesday, October 6,
a listen only mode where we will focus on
our LoRa platform. More details on the event, including the agenda and sign up information will be coming soon. With that, listen. I will turn the call over to Semtech's Chief Financial Officer, Emeka Chigou. Emeka?
Thank you, Sandy. Good afternoon, everyone.
A listen only mode.
As is our practice, I will be focusing my comments on our non GAAP financial results unless otherwise a listen only mode. For Q2 fiscal year 2022, net sales grew 9% sequentially and 29 a low 20% year over year to $185,000,000 which was above the midpoint of our guidance and represented a new quarterly record, a listen led by the secular momentum that contributed to new records achieved by several of our growth of our key growth a listen only mode of platforms. In Q2, shipments into Asia represented 81% of net sales. A listen North America represented 11% and Europe represented 8%. While these represent the shift to addresses for our a listen only mode.
We estimate that approximately 35% of our shipments are consumed in China, 27% in the Americas a listen and a balance over the rest of the world. Total direct sales represented approximately 13% of net sales a listen and sales to distribution represented approximately 87% and our POS was another quarterly record. A listen. Our distribution business remains balanced with approximately 39% of the total POS coming from the infrastructure end market, a listen only mode. 31% from the industrial end market and 30% from the high end consumer end market.
Alone. Q2 bookings remained strong and increased 75% year over year and resulted in a book to bill well above 1. A listen. First bookings accounted for approximately 3% of shipments during the quarter. A listen.
Q2 gross margin increased 70 basis points sequentially to 62.7%, which was at the upper end a line
of our
guidance range due to a more favorable product mix. Our gross margin is benefiting from a higher mix of sales from our growth platforms, including LoRa enabled, data a listen only mode. We are pleased with the progress we made in the quarter.
We are pleased with the
progress we made in the quarter, a listen to the 10 gig PON, 5 gs wireless and broad based industrial protection. For Q3, we expect gross margin in the range of 62 point a listen. 8% to 63.8%, as we anticipate a greater contribution from these growth drivers. A listen. Q2 operating expense increased 3 percent to $65,900,000 driven by higher variable compensation expenses, a
listen to the outlook
for the fiscal year 2022, we expect our operating expense to be in line to a listen only mode. In Q2, we were again pleased to see our operating profit on a sequential and year over year a low margin basis grow much faster than sales due to the gross margin expansion and stable operating expenses. A listen. This drove a 2 70 basis points sequential expansion of our operating margin to 27.1%. We expect a continued operating leverage as we make progress towards our 32% to 36% long term a listen to the target model.
In Q2, cash flow from operations increased 63% sequentially a listen to a record $53,000,000 or 29% of net sales, while free cash flow increased a listen to 71% sequentially to 25% of net sales, achieving the lower end of our long term free a cash flow target range of 25% to 30% of net sales. A listen. In Q2, we repurchased approximately 1% of our outstanding stock for $42,000,000 resulting in $322,000,000 a listen only mode. We expect to continue to use our cash to opportunistically repurchase our shares, a listen. Accounts receivable in Q2 increased a listen to 10% from Q1, while days of sales decreased 3 days from Q1 to 34 days a listen and remains below our target range of 40 to 45 days.
In Q2, net inventory in absolute dollar terms increased a low 10% sequentially and days of inventory increased by 3 days to 129 days at the end of Q2. A listen. We expect our net inventory to remain above our target range of 90 to 100 days to support the stronger demand and the tighter a low supply chain environment. In summary, we are pleased with the strong first half momentum we are seeing from our higher margin growth engines,
a listen, which we expect to continue in the second half.
We believe the sustainable secular drivers behind our growth engines, our expanding gross margins, a listen. Stable operating expenses and strong cash flow generation have positioned us well to deliver a record financial performance in fiscal year 2022 a listen and beyond. I will now hand the call over to Mohan.
Thank you, Emeka. Good afternoon, everyone. A listen. I will discuss our Q2 fiscal year 2022 performance by end market and by product group and then provide our outlook for Q3 of fiscal year 2022. A listen only mode.
In Q2, net revenue increased 9% sequentially and 29% over the prior year to a record $185,000,000 a listen to the Q2 growth. We posted non GAAP gross margin of 62.7% a listen and record non GAAP earnings per share of $0.65 In Q2, net revenue from the infrastructure market increased a listen only mode of 10% sequentially and represented 37% of total net revenues. Industrial market net revenue increased 5% sequentially a listen and represented 31% of total net revenues. The high end consumer market net revenues increased 10% sequentially a listen and represented 32% of total net revenues. Approximately 21% of consumer net revenue a listen to mobile devices and approximately 11% was attributable to other consumer systems.
A listen. I will now discuss the performance of each of our product groups. In Q2 of fiscal year 2022, our Signal Integrity Product Group
a listen only mode.
We grew 10% sequentially and represented 39% of total revenues. Strength from the data center and the PON markets a listen to the growth in our SIP business. In Q2, revenue from the data center market grew sequentially, a listen led by record revenues from our PAM4 platforms. Strong design win momentum in 100 gig, 200 gig a listen and 400 gig PAM4 optical modules is expected to contribute to a strong second half for our data center business. A listen.
We are very pleased with the progress of our Tri Edge short reach platforms and we expect to introduce our new longer reach
a listen to FlyEdge platforms over the next 12 months that we believe will open up the
full 200 gig and 400 gig PAM4 data center market to us. A listen only mode. We remain confident in our strategy and as we execute on delivering our Tri Edge and FiberEdge platform that deliver lower power, lower cost and lower latency, a listen only mode. We should see continued growth in our data center business in FY 2022 and beyond. In Q2 of FY 2022, revenue from our PON products a listen to the call.
Demand for our 10 gig PON products remains very strong a listen and achieved another record and now represents the largest revenue segment within our PON business. A
listen to the call. Semtech provides the most comprehensive PON
PMD portfolio available in the market today, and we expect our PON business to continue to benefit a listen from the global demand for higher bandwidth access solutions. We expect our PON business to remain strong over the next few years a listen as global service providers accelerate their deployments of broadband access equipment. In Q2 of fiscal year 2022, a listen. 5 gs demand slowed as expected following the prior quarter's record results. However, with several China tenders recently announced a listen only mode and carriers in
North America and Europe
expected to begin 5 gs build outs over the next 12 months. A listen. We expect to see demand for our 5 gs platforms pick up during the second half of this year. We continue to see design wins for both our 25 gig ClearEdge a listen to the 5 gs PAM4 Tri Edge platforms in 5 gs front haul optical modules, and we believe we are well positioned to benefit a listen only mode from next generation wireless network deployments. As users demand greater bandwidth, we expect the infrastructure segment to continue to grow a listen and expect this to result in sustainable long term growth for our Signal Integrity product group.
A
listen only mode. In Q3 of fiscal year
2022, we expect revenue from our Signal Integrity Product Group to increase and achieve another record a listen, driven by growth from all the infrastructure segments. Moving on to our Protection Product Group. A
listen only mode. In Q2 of
fiscal year 2022, net revenues from our Protection Product Group increased 9% sequentially and increased 49% a listen year over year and represented 27% of total revenues. In Q2, protection revenue from our consumer customers a listen only mode. We have a few questions. I will now turn the call over to Mr. President.
Thank you, Steve.
Thank you, Steve. Thank you, Steve.
Thank you, Steve. Thank you, Steve. Thank you, Steve. Good morning, everyone. Good morning, everyone.
Good morning, everyone. Good morning, everyone. Good morning, everyone. Good morning, everyone. A listen.
Demand also increased across the broad based industrial markets, led by stronger demand from North American and European Automotive and Industrial customers. A listen. Many of today's automotive, IoT and communication systems use advanced lithography chips a listen only mode that require higher performance protection. Our latest protection platforms deliver technology that prevents damage to these highly sensitive chips. A listen.
In addition, as part of the industry's ongoing push on ESG, we are seeing an increased focus on the reduction of electronic wastage, a listen, which we believe will further accelerate the adoption of Semtech Protection products. We expect both these trends to continue to drive further adoption a listen to the call of Semtech's protection platforms across all market segments and enable us to deliver double digit growth with increasing gross margins over the next several years. A listen. In Q3 of fiscal year 2022, we expect our protection revenues to increase again nicely, led by continued strength from the broad based industrial market. A listen.
Turning to our Wireless and Sensing Product Group. In Q2, revenues from our Wireless and Sensing Product Group a listen only mode. Increased 7% sequentially and 61% over the prior year and achieved another quarterly record a listen and represented 34% of total revenues. In Q2, our LoRa enabled platforms listen to the Q1 of 2019. We delivered another quarterly revenue record, driven by the Smart Utility, Smart City and Industrial IoT segments.
A listen. The momentum from our LoRa platforms has really started to accelerate globally, and we expect to see continued growth this year in line with our long term 40% CAGR forecast. We are also seeing a tremendous number of new LoRa based use cases a listen globally that support future growth. Recently announced initiatives include LDT, a listen only mode. A South Korean smart sensor network provider integrated LoRa into its smart fire prevention system a listen that provides real time analytics, sensing, connectivity and geolocation to protect commercial facilities such as shopping malls and local markets.
Listen. Swiss Post have deployed its smart connected pens that leverage its nationwide LoRaWAN network a listen to the Swiss Postal Service. Oxit, an IoT Solutions expert, is collaborating with Semtech a listen to support a number of new smart utility IoT initiatives targeted at the oil, gas and communications industries a listen and Skylab, a supplier of wireless sensors and GPS tracking and measuring systems, will be using our LoRa Edge platform to develop a solution a listen for indoor and outdoor asset management of vehicles, vessels and containers. This is one of many asset a
listen to the best tracking design wins
based on our LoRa Edge platform that are expected to convert to revenue in the next 12 months to 18 months. A listen. These are just a few of the new use cases that highlight the flexibility, scalability and momentum of LoRa that is enabling a smarter, a well connected and sustainable planet. In Q2, our LoRa business metrics progressed very well against our FY 2022 targets. A listen.
The number of LoRaWAN network operators grew to 156, and we are expecting 165 LoRa network operators by the end of FY 2022. The cumulative number of LoRa end nodes deployed a low range of $2,800,000 and we expect this number to exceed $236,000,000 cumulative end nodes by the end of FY 2022. A listen. The number of LoRa gateways deployed increased to over 2,200,000 a listen and has already exceeded the goal we set for the full year. As a result, we are increasing our gateway target for the year to 2,500,000 a listen.
The LoRa opportunity pipeline increased nicely in the quarter and now stands at over $850,000,000 a listen, which also exceeds the target we have set for the whole year. As a result, we are increasing our opportunity pipeline target for the end of the year a listen to $900,000,000 We anticipate that approximately 40% of the opportunities currently in the pipeline a listen to the call. Our metrics demonstrate the growing adoption and deployment of LoRa a listen only mode.
With a long range,
low power and low cost of LoRa is being leveraged. We believe that this momentum in our metrics, a Along with the increasing influence and efforts of the LoRa Alliance, we'll continue to enable LoRa to become the de facto standard a listen for the fast emerging LPWAN market. In Q2, our proximity sensing platforms achieved another quarterly record, a listen led by strength at our smartphone customers. Semtech's proximity sensing platforms provide the industry's most advanced a listen and highly integrated proximity sensing technology for mobile and wearable devices. The growing adoption of 5 gs phones and the use of a listen to higher powered radios is contributing to an increasing number of social health concerns, resulting in more stringent RF power regulations globally.
A listen only mode. This trend is expected to result in increasing demand for our proximity sensing platforms over the next few years. A listen for Q3 of fiscal year 2022, we expect net revenues from our wireless and sensing product group to increase and deliver another record quarter, a listen only mode. Moving on to new products and design wins. In Q2 of fiscal year 2022, we released 11 new products a listen and achieved 2018 new design wins, which represented a 16% increase over the previous year.
A listen. Now let me discuss our outlook for the Q3 of FY 2022. Following very strong bookings in Q2 a listen to the call. Increased 75% over the previous year and record POS. We entered Q3 with record backlog.
A listen. We are currently estimating Q3 net revenues to be between $188,000,000 $198,000,000 a listen only mode. To attain the midpoint of our guidance range or approximately $193,000,000 we needed net terms orders of approximately 5% a listen at the beginning of Q3. We expect our Q3 non GAAP earnings to be between 0.68 a listen and $0.76 per diluted share. I will now hand the call back to the operator and Sandy, Emeka and I will be happy to answer any questions.
A
listen. Operator?
Thank you. A listen. A listen only mode. A listen only mode. Our a listen.
Our first question comes from the line of Tore Svanberg with Stifel. You may proceed with your question.
A listen. Yes. Thank you and congratulations on the record results. Mohan, I think you mentioned that LoRa is now basically on track, growing at the sort of 40% forecast. Does that mean this year is also now tracking a For LoRa to be up 40%?
It is. It's tracking. I would say it's tracking ahead of that actually. So a low That's our expectation to be at least 40%. Yes.
Very good. And as a follow-up, just to clarify, when you talk about protection business, a listen. You expect it to be a double digit growth business going forward. Was that specifically for the non consumer part or was that for the entire category?
A For the entire category, I think consumer obviously grow faster, but it can also come down faster. It's a little bit more volatile. A lower Our broader industrial protection is more stable growth, I would say. It's not going to you're not going to see the a low No, it's very high and a very drop, it's just more. Just kind of whatever the industry is growing at plus a low X percent.
And I think one of the things about this business is that we are really just starting to play in the broader industrial protection business. So a We have a lot of the ability to increase penetration there, I think, is much better for us as some of those trends I mentioned a go in our favor. So as a total, we think we can grow double digits nicely. The other thing to remember on this business is that the broader industrial protection business a low margin, typically than the consumer protection. So that will definitely be a positive for us.
A listen.
Very good. Thank you very much. Congrats again. I'll go back in line.
Thank you. A listen. Our next question comes from the line of Tristan Gerra with Baird. You may proceed with your question.
Hi, guys. A listen. Congrats. About the 40% of the $900,000,000 pipeline in Loa that you expect to deploy over the next a 24 months. Can you remind us of the average duration of those design wins?
So the opportunity funnel, Christian, covers a low Several years of design opportunity. Some of those will move faster a listen and can turn to revenue in 12 months. Otherwise, it may take 36 to 48 months depending on what it is, if it's a meter relative to maybe a smart home application as an example. A So on average, we would say 40% of that total opportunity pipeline will convert over the next couple of years. A Maybe the way to think about it is probably 2 to 3 year timeline, 40% of those opportunities will convert to design wins and revenue.
A
listen. Okay. And then as a quick follow-up, if you could reconcile, obviously, you have very strong visibility, very low a listen to net terms to meet your core guidance, but you're also raising inventories internally. How much are you suffering a listen. Supply constraints right now and when would you expect a catch up shipments relative to the real level of demand that you're seeing?
A listen.
Well, we are shipping nicely to consumption, which is what we believe is the right thing to do. So we don't believe any of our customers, our end customers are a short. There are pockets of supply constraints from in certain businesses that are doing extremely well. A long time. But in general, we think we're quite comfortable.
We built good amount of inventory. We've anticipated the demand strength, a listen and that's what we're doing. So I think we're good for this year to support the consumption that we believe is required. A listen. As we go into next year, we're going to have to take a close look at it.
But we continue to believe the right thing to do is to build our own internal inventory and make sure that we are shipping to consumption levels.
Great. Thank you. A listen. Our next question
comes from
the line of a listen to Quinn Bolton with Needham and Co. You may proceed with your question.
Hey, guys. Let me echo my a listen. Hi, congratulations as well. Mohan, wanted to start with the LoRa opportunity pipeline, which is expanding nicely. A listen.
Can you talk about is are you seeing a broadening out in that business and pipeline or are there a couple of specific a listen to the smart city, smart home, applications that are really starting to drive a lot of the growth in the pipeline.
A It's so I would say it's very broad, Quinn, and it's also regionally quite well balanced, which is important. So a listen. I would say in the Americas, it's smart home driven, smart utilities and logistics. A listen. In China, it's smart utilities, smart city and industrial IoT.
And in Europe, it's smart utilities, logistics and industrial IoT. So it's different segments driving most of the opportunities. Not a surprise that those segments are the ones that a driving the business because they that's where LoRa fits very well into those categories. And so a That's what we expect and that's what we're seeing. So not really a surprise.
I think over the last couple of years, as you know, with the pandemic and some of the a listen. China trade issues, the opportunity funnel hasn't increased the way we would have liked it to have done, but we're starting to see that now. And a listen. That's really a positive thing because that really will drive the future growth.
Great. And then a quick question for Echo.
A listen. Nice job on the gross margin expansion and particularly so on the guide. And I guess just looking forward, it sounds like a lot of the growth are coming a listen to higher margin products. And so I guess it just begs the question, if you think you can be 62.8% to 63.8% in the October quarter, a listen. Where do you think margins could go over the next 1 to 2 years?
Do you think you could see 64% to 65%? What's the upper limit we should be thinking about?
A listen.
Yes. So when we look at our gross margin story, it is actually very pleasing to see it playing out a line with the way we had expected, right? We've always talked about these high gross margin growth engines that we have. A listen. You look at LoRa, you look at the Tri Edge platform, you look at our 10 gig PON, our 5 gs wireless.
A So those things are really under industrial broad based industrial protection. So they are really tracking very nicely. A listen. If you look at those just by themselves alone, you would definitely make the case to for continued gross margin expansion. A listen.
The one headwind that we have, what I think we have managed it very well so far is all these a listen to the supply constraints we have right now and the fact that is driving a whole lot of price increases in terms of wafer pricing and the back end pricing as well. A listen. So far so good. We've been able to manage that. But as you probably know, there's been a lot of news in that space lately that there's going to be additional a low increases in that area.
So we just have to see how that plays out. But my expectation and this is a long winded way of saying this, but my expectation is that a listen. We should continue to see some gross margin expansion being driven by these new growth engines that are really beginning to scale for us.
A listen.
Great. Thank you.
Our next question comes from the line of Karl Ackerman a listen only mode. You may proceed with your question.
Yes. Good afternoon, gentlemen. Two questions for me, please. A listen. First, could you discuss your ability to secure additional wafer capacity over the last 90 days and whether that might improve a listen for the October quarter.
Additionally, what kind of visibility do you have into your bookings pipeline across each a listen to the second half of our
fiscal year. So, Karl, let me start with that first. The visibility is very good. A listen. We have obviously very good visibility into Q3.
That's why the terms number is relatively low for us. A listen. We also have pretty good visibility, I think, into Q4. Bookings are very strong. So a listen to the customers are giving us the visibility into what they need into really throughout the rest of this year, which is good and helpful for us.
A listen. On the supply side, as you know, we built inventory over the last couple of years. We made it a strategic goal to do that. We knew this was going to happen, and so we're in pretty good shape, I would say. A listen.
But the other thing that we have done over the last couple of years is to build and try and build as much as we can parallel supply chains and mitigate a listen against the one wafer fab or one back end, either struggling through pandemic issues or a In this case, your question, capacity constraints, right? So we've been able to do a pretty good job there. It's not the case in all products, but in most cases, we do have a multiple supply chains. Now that said, everybody seems to be very tight in supply. So I don't think a listen.
There's one foundry or one back end partner. It's really everybody in the industry seems to be very tight at the moment. So a low Our job is to just kind of keep working through it. And that's why I said we are shipping to consumption. A very important point in that is that we are shipping to what we believe our customers need a listen to the call and to make sure that they can build their products.
And that's what our continuing goal will be for the rest of this year is to make sure we ship to consumption so that they a listen. They're not building inventory and our channel is not building inventory and it's a healthy pipeline, operational pipeline. A
listen. Yes. Very helpful. For my follow-up, what I was curious what portion of your optical products now address a listen. Pam, for because it does appear that you continue to win incremental designs for higher transmission rates.
A listen. And then secondarily, I was curious if you could I guess as you address that question. I was hoping you might discuss the demand outlook you are seeing from module makers a listen to the recently awarded 700 megahertz and 2.1 gigahertz tenders in China, and perhaps how you would characterize the a low risk environment for telecom operators outside of China. Thank you.
Again, I'll start with that. The a We're seeing obviously, there's a lot of potential growth here in 5 gs. China is still the driving force for this year, I think, starting to see more growth in other regions. But certainly next year, we expect that to ramp up. A listen.
And I would say still today that the rest of the world is catching up a little bit in terms of the service providers and even the OEMs. A But that globalization, I think, is really beneficial for companies like us because we are shipping into all of the module manufacturers and a listen. We would like to see a more balanced geographical landscape for 5 gs in terms of opportunity. So I think that's good. A listen.
Coming back to the PAM4 question, we've invested heavily in our FiberEdge and Tri Edge PAM4 products, I mean, both for a live 5 gs wireless and 4 data center, as you know. And I think now we are just starting to release those products to production, a look at design wins and we're starting to see the ramp of those. And there's limitations at this point because our products are mostly short reach, a listen to the Tri Edge side of things. And we have to develop we have to release our longer reach products, as I mentioned. But as we do that, I think we'll start to get more penetration of a listen
to 2
100 gig and
400 gig
PAM4 modules and start to see a little bit more a balanced approach there in terms of growth in some of those pretty attractive segments. Again, the a focus of our strategy on the PAM4 side is the analog side of things. So we are focused very much on lower cost, a lower latency, lower power, and that's what our strategy is for now and that's what we'll continue to do.
A listen. Very helpful. Thank you.
Our next question comes from the line of Scott Searle with Roth Capital. You may proceed with your question.
Hey, good afternoon. Thanks for taking my questions. Nice quarter. Mohan, just real quickly, I wanted to get a clarification on the 8 a $50,000,000 LoRa opportunity pipeline. I just wanted to get a clear definition in terms of how you're defining that again.
Is it over the lifetime of the expected design win? Is there a limited time period associated with it once it goes live. Also, I'm not sure if you provided, a percentage outside of China on that opportunity pipeline. I recall in the a low risk.
I think you've gotten
over 50%. Just kind of wondering if we're in that same sort of ballpark. And then as it relates to the applications on the lower front, it sounds like more and more a It's expanding beyond what were more localized in campus applications into more pan regional opportunities be smart city and otherwise. I was wondering if you could comment on kind of the evolution of how that's going from, a, I guess, a geographic coverage standpoint.
Okay. So, there are a lot of questions there. Let me see if I can remember them. So the first was a The pipeline itself, yes. So the $850,000,000 covers everything in our pipeline.
So it's from concept a listen to the production stage, to the end of production. So we can't capture everything. Of course, once it's a gone into design wins, our confidence level starts to increase quite dramatically that, that opportunity pipeline is going to lead to revenue. A low But until it does, we don't really consider it to be a revenue. That's why I say 40% typically is converting.
Obviously, once it gets into production, then a low level. It's very high and then we monitor the production ramp. So that's the first thing. And then on the geographical a low single digit range. Yes, I think revenue wise, about 50% of our business is from China a listen and about the rest of the world, Europe and North America.
A listen. Important to note that about 35% is consumed in China. So even though we're building in China, a lot of that may be shipped outside. A listen. But the funnel is interesting because a lot of the opportunity, about 75%, I would say, is outside of China.
A listen. And part of that is just the maturity of some of the regions now. North America is starting to really ramp its a design in activity on LoRa as a Europe. And as I mentioned, some of the use cases, for example, in Americas, a listen. Smart home is a very big opportunity in the Americas.
Smart utilities, logistics, very big in the Americas. A listen. In China, smart utilities continues to be very big, but smart city also is a very big opportunity in China and industrial IoT. A And then in Europe, it's Utilities, Logistics and Industrial IoT. So it's a little bit of a mixed bag across each different region, a Which is very nice to see actually.
And these are just some of the segments. I mean, obviously, I'm naming the big ones, but we have a lot of other a look at the opportunities, healthcare and agriculture and all those types of things, but these are the big ones. And I think that really starts to, again, put a real a low Some real clarity behind why we believe LoRa is going to be extremely successful.
Great, very helpful. And if I could on the protection front, a listen. I think historically, it's been more skewed towards smartphones, mobile devices. I'm wondering if you could calibrate us in terms of where that mix is today and where a listen to when you would expect non mobile applications to surpass mobile applications on the protection front. And lastly, seasonality, a 4th quarter typically is seasonally a little bit down.
It's been anywhere from, I think, 4% to 9% depending on the year. This is certainly an unusual set of circumstances given demand and a listen to the supply headwinds. So I'm wondering what your early thoughts are as we're starting to look out into that fiscal Q4? Thanks.
A listen.
Yes. So protection business, 65% is consumer, 35% is broader industrial, roughly just a kind of high level and those broader industrial include comm, include IoT, includes automotive, a So anything that's non consumer really. And so as we see a lot of our investments historically have been in the a consumer protection space. We've now kind of switched that and a lot of our investments are going into the broader industrial protection space, a Especially automotive and calm and IoT. And so, I expect that mix to shift a listen.
Slightly, so probably 40%, 45% protection business eventually and a maybe 55 consumer, but it's going to take time. And one of the reasons why it's going to take time, we're doing extremely well still in consumer. And we're not shying away from that business, and we are a line. And some of the trends are going in our favor. So we'll see how it plays out.
But yes, that's the goal is to try to get a little bit better balance in terms of a Broader industrial versus consumer.
And then the Seasonality.
Oh, seasonality. Yes, I mean, so the seasonality typically for us Q4 a low Will come down and a lot of that is driven by the consumer business. You guys like Samsung will bring down their inventory levels and end of year, that tends to be the case in a listen to the consumer. We'll start to see companies reducing inventory levels and things like that. As you said, this year a It's going to be different, I think, probably because of lead times on supply.
So I'm not listen to the call. Sure that we're going to see such an aggressive reduction. So we still expect some decline in Q4, but I don't know exactly how much.
A listen. Great. Thank you.
Our next question comes from the line of Rick Schafer with Oppenheimer. A listen. You may
proceed with your question.
Thanks, all and my congrats. So PAM4 is picking up a listen. Nicely, obviously. I'm curious, Mohan, if you could level set us. I think last quarter you talked about Tri Edge.
I I think it was a 24 evaluations
and
just was curious if you could maybe update us on what that number looks like now and maybe give us some color around a listen to what the either in terms of design wins or revenue pipeline might look like for Triadz in particular. A listen. And I don't know as part of your answer, if you could kind of also level set us on sort of what your expectations are for the analog PAM4 market.
I mean, a listen to how big you'd expect it
to be compared to DSP and sort of what realistic share assumptions are for you guys given, I mean, a in such a dominant position in data center today and things like CDR. So it seems like you're kind of getting off on the right foot there. So I'm just curious, I know there's several questions in there, but I'd be curious a listen to what you think.
Yes. So it's early days for us, Rick. I would say we are getting a lot of good design wins. A listen. The momentum is good, particularly on the shorter reach.
Obviously, the short reach AOC kind of stuff, it's fairly global as well. We're doing quite well in Asia. We're doing quite well in North America and some of the hyperscale computing kind of related stuff. A I think where analog wins and where we have a good chance is where there's latency needs and when the cost requirements are low and a listen. When the power is important and those 3 if those are 3 critical elements of deployment, then we stand a very good chance with a listen.
The analog PAM4 products we have and Tri Edge is doing well. FibreEdge also, which complements DSP, also is doing well a listen for us. I think once we get our longer reach platforms out, which is towards the some towards the end of this year, maybe some early next year, I think a We then will open up the 200 gig and 400 gig market to the whole market, and then we'll really be able to sit down and evaluate a listen to what we think our long term position in this market will be. But for now, I think it's just kind of getting out there and blocking and tackling, trying to win as many as a listen only mode. We can in the shorter reach use cases and I'm delighted with the progress.
I mean, obviously, this is going to be a nice growing business for us a listen only for this year and for next year, quite rapid growth. We're expecting some good share there. So we'll see how it plays out.
A listen. Thanks, Alan. And maybe one for Rebecca, if I could. I mean, as your top line is accelerating to that sort of $1,000,000,000 you've talked about being optimized a listen to the call, I think, in annual revenues. Is there any reason as we start looking out, I know you're not guiding to calendar 'twenty two or 'twenty three, but a listen to any investment pick up as you guys, let's say, need to add more capacity or should we think sort of for the foreseeable a listen that OpEx kind of continues to grow sort of roughly half top line.
Thanks.
Yes. So Rick, that is our model. It's worked out a listen for us very nicely and we've been able to maintain that model for the most part. So that's what we still expect is to continue to see very nice a line. Top line growth from all the growth drivers that we've been talking about, see gross margin expansion and then have operating expenses a listen Coming about half the rate of revenue growth.
That's how we manage the company, and we expect to continue to do that.
A listen. Great. Thanks for the color.
Our next question comes from the line of a listen. Harsh Kumar with Piper Sandler. You may proceed
with your question. Yes. Hey, guys. First of all, strong congratulations. A listen.
Very nice quarter, very nice guide. Mohan, I had one for you. You had a very impressive, something kind of very impressive infrastructure increase. A listen. I was curious if 10 gigabit PON is a bigger driver of that increase or is it the data center side?
And then as a part of the data center side, a listen. Are you able to sell to Huawei at this time? We've heard a couple of companies selling optical components there. And maybe just give me an idea of a listen. Is your data center business more so U.
S. Centric or China centric?
So let me take that first, Harsh. A It's mixed. It's actually quite well balanced between Americas and Asia. Asia probably have more design wins and I think momentum is good there. A listen.
On the PON side, PON is extremely strong at the moment. 10 gig PON particularly is very, very strong. I would say that's probably the a Strongest outside LoRa, the strongest growth area for us. And then data center is also doing extremely well and a In the pockets, of course, more so in the 200 gig area, PAM4 area is growing nicely. A listen.
Yes, I think across the board, we're very pleased with the infrastructure growth. And I think we anticipate a listen. It's going to continue to grow, whether it's on the access side, which will help PON, whether it's on the kind of base station side as 5 gs deployments occur a Or on the data center side, we would expect those three areas to continue over the next 3 to 5 years to get quite sizable investments around the world just for more bandwidth and we should see the benefit of that.
A listen. Mohan, I
also had a question about Huawei. Are you able to sell to Huawei at this point? Are they part of the revenues?
A listen. Yes, each one is
actually, Huawei is very little revenue for us at this point in time. I think each product we apply for a license and it's a hit and miss. Actually, we don't really understand what how the decisions are being made. But I would say most of the product most of the businesses at the moment, a We're not shipping a lot into Huawei themselves. I think, yes, that's probably the case, right?
Michael, do you have the
Got it. And from my last one, a listen. So Laura, you have records all around. I was wondering if you could address the U. S.-based activity with large customers.
A listen only mode. And if you feel like the U. S. Revenues have started to kind of mobilize in a meaningful way, are we there at this point? Or you feel like a We still have to wait for a little bit of momentum in the U.
S. Market from a revenue standpoint.
So in the U. S, there's a lot of activity a listen. Across the board, utilities, logistics, smart home is all going very well.
A listen. I would say that we haven't yet
seen the benefit really of activity. A And I anticipate that really it's probably going to be first half of next year, maybe when we start to see it. We're starting to see some this second half, I think, but a I think the real pickup is going to be next year. So, yes, I think it's still a lot of activity, a lot of good activity, lots of momentum. A listen.
For sure, you'll see and hear some announcements over the next quarter here of more things that are going on. But in terms of revenue, I think relatively small a
listen. Our next question comes a listen from the line of Gary Mobley with Wells Fargo. You may proceed with your question.
Hey, guys. Let me extend my congratulations a listen only mode. I had just one multipart question for you guys and that relates to supply chain constraints and the price increases a listen. We've all been hearing and reading about coming out of Taiwan. I presume correct me if I'm wrong, but I presume that, a listen to that isn't going to immediately pose a margin pressure for you given that you were able to a low single digit range.
And then just a follow-up question.
Yes. And then just a follow-up question. Yes.
And then just a follow-up question. Yes.
And then just a follow-up question. Yes. And then just a follow-up question. Yes. And then just a follow-up question.
Yes. And then just a follow-up question. Yes. And then just a follow-up question. A little bit of pressure from your supply chain.
Have you communicated to customers the possibility of raising prices? A listen only mode. And can you maybe share with us what the feedback has been from those customers?
So Gary, yes, that's a very good listen. And I think I'd like to ask it by saying that so far this year, we've actually a listen to the press release. We received price increases from some of our funding partners and backend partners. And I think for the most part, we have been successful a listen to the call in
sharing that burden with our customers.
With regards to some of the new announcements coming out of a listen. Taiwan, like you mentioned, it is still it just came out. We don't expect that to impact our current quarter. A But the expectation is that we are going to handle it the same way. We are going to try to share some of that with our customers.
And hopefully, we can a listen to the same type of success that we saw before, but of course it has to play out.
A listen. Okay. Emeka, for clarification, you said your days of inventory were 129 days that was up 3 days sequentially. Is that right?
A listen.
Yes.
All right, great. Thank you, guys.
Our next question comes from the line of Craig Ellis with B. Riley Securities. You may proceed with your question.
Hey, guys. Thanks for a listen
only mode. Including me and nice job with
the quarterly execution.
Mohan, I wanted to start just by following up on part of the question a listen. That was recently asked, and it's about LoRa. So it seems like after a listen to some of the work that was done to get the LoRa pipeline in place in U. S. And Europe.
We had COVID and we're coming off of that with continued a strong pipeline growth and we're entering a period of acceleration. And I think you mentioned that your expectation is that LoRa would grow above a excuse me, above 40% this year, so above that long term CAGR. The question is this, if we now have 2 big geographies, the U. S. And Europe that are hitting a listen to their stride in uptake acceleration and given that with wireless technologies a That part of the adoption curve can accelerate on a multiyear basis.
What are the gives and takes with LoRa actually performing a Above the 40% CAGR when we look out to next year calendar 2022 year fiscal 2023.
Yes. I think that's a good question, Craig. A listen. If you go back to the past certainly over the last 5 years, I've always been saying that I expect this business to double every year a For a long time and obviously in the last couple of years, it didn't grow that well for pandemic reasons and a The China related issues and whatever. So I'm a little bit more cautious about how I project the growth.
But what I would say is that a listen. When you look at the market, the LPWAN market, a lot of the LPWAN drivers a listen to the call. Things like climate change, environment, efficiencies, utility management, things like that, a Which around the world, you just see it every day that there's a need for it. And that's what's transpiring in my view is that it's going from being a nice to have a listen to a real need and that need is, I think, is going to drive a faster adoption of some of the LPWAN a listen to our technologies and I think LoRa is the best and the most capable technology. And so that's what I think is going to drive the growth.
A listen. In addition to that, if we look at new segments like the smart home segments, we talk about sidewalk a low And Amazon, we don't even consider that to be LPWAN. We consider that to just be low power wireless market. We're seeing that LoRa is starting to find its way into other a low power wireless segment. And so I do think the growth can be greater, but I think we will stick with the 40% CAGR a Is that our goal and make sure we execute on that, right?
Yes. It makes a ton of sense. A listen. And then Emeka, I just wanted to clarify that I was hearing you correctly in terms of how you're characterizing the impact of the various supply a listen to the question and answer session. And admittedly, I missed the prepared script part of the call, but I think what I gathered was that you were conveying that there is a listen.
An impact to gross margin in the business, even though you do have some success ensuring some of the price increases that are a listen. Starting upstream from you with your customers, but I heard you say that there wasn't a revenue impact in either the quarter or the outlook. Is that correct? And if not, please a
listen. Okay. So what I was saying was that we have a listen. Actually had price increases so far this year, right? And we have been able for the most part been able to pass that on to a listen to our customers.
We've been able to share that burden with them. And so the answer that I was given was saying that a listen. And as we go forward with some of the new news, very new news that is out there, especially out of Taiwan, a listen that they are going to increase their wafer prices. That our expectation will be that we should a listen to the same kind of success that we saw in the past with regards to how we share that burden with our customers. Obviously, we have to see how it plays out, right?
A listen. But we're very hopeful that, that is something that should not significantly impact our gross margin expectations.
A listen. One of the things to remember, Craig, is that when you look at a lot of our growth, as Emeka pointed out, it's coming from new platforms a listen only mode. That really drive are driving higher ASPs for us. The 10 gig PON is an example of that. The a Data center products, the Tri Edge in 5 gs wireless, IoT, all the LoRa related products, a lower protection products.
So as we see the supply chain increases, a Part of our goal is to make sure that we are pricing appropriately, right? So because we have new products coming out at the same time, I think that's a An opportunity for us to take advantage of that.
Yes, certainly the new the strong new product cadence is something you can leverage in this environment. I appreciate the input guys. A
listen.
A listen from the queue. Our next question comes from the line of Tore Svanberg with Stifel. You may proceed with your question.
A listen. Yes. Thank you. I just had a follow-up on LoRa and on one of the metrics. The one metric that really caught my attention was the gateways.
A listen. It's gone up quite dramatically the last two quarters. Mohan, is that simply because LoRa is becoming more and more of a consumer technology?
A I would say it's a little bit of both, Torey. I would say that not so much consumer, but we are getting some a Smart home deployments. And of course, if you think about echoes in the home or if you think about the helium gateways, which are a smart home type of initiatives that drives a higher volume of gateways. But yes, you're right. I mean, even for us, it's a surprise to see a quite aggressive growth there.
We had, as you mentioned, the target for the year was 2,000,000 gateways and a We're already at 2,200,000 gateways. So we've raised that to 2,900,000. But I mean to me, the beauty about the gateway deployments is it really just a listen to the question and answer session. So if you have infrastructure out there, a listen. Then it's just a question of time for the sensors and the use cases to catch up.
There's a couple of bottlenecks still. I mean software a There's a bottleneck and I think sensors is a bottleneck in some cases. But as those bottlenecks get removed, then a listen. There's no reason to question the growth in the opportunity there.
A listen.
At this time, there are no more questions. I'd like to pass the call back over to management for any closing
remarks. In closing, we are pleased with the strong first half results a listen as we saw increased adoption of our growth engines in the infrastructure, smarter planet and mobility markets that should provide sustainable a long term growth. We have been successfully navigating the challenging supply chain environment and expanding on our sustainability efforts, a listen, including our commitment to human capital development. Given our diverse and growing product offering, balanced markets and strong customer relationships, a listen. We expect to deliver a stronger second half and record financial performance in FY 2022.
With that, we appreciate your continued support of Semtech a listen. I look forward to updating you all next quarter. Thank you. Operator? This a
listen.