Greetings. Welcome to the Semtech Corporation Q1 Fiscal Year 2022 Earnings Call. Call. Please note this conference is being recorded. I will now turn the conference over to your host, Sandy Harrison, VP of Investor Relations.
Thank you. You may begin.
Thank you, Hillary, and welcome to Semtech's conference call to discuss our Q1 fiscal year 'twenty two financial results. Call. Speakers for today's call will be Mohan Manswaran, Semtech's President and Chief Executive Officer and Emeka Chukwu, 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 these risks and uncertainties, please review the Safe Harbor statement included in today's press release and in the other risk factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, today's Comments made on today's call are current as of today only, and Semtech undertakes no obligation to update the information from this call should facts or circumstances change. As a reminder, all references made to financial results in Mohan's and Emeka's prepared remarks during this call will refer to non GAAP financial measures unless otherwise noted. A discussion of why the management team considers such non GAAP financial measures useful, along with a detailed reconciliation of such non GAAP measures The most comparable GAAP measures are also included in today's press release. With that, I will turn the call over to Semtech's Chief Financial Officer, Meka Chukwu.
Meka?
Call. Thank you, Sandy. Good afternoon, everyone. As Sandy stated, unless otherwise noted, I will be reviewing our non GAAP Financial results and the reconciliation tables are available in today's press release. For Q1 fiscal year 2022, Net sales grew 3% sequentially and 28% over the same period a year ago to 170 point call.
$4,000,000 and above the midpoint of our guidance led by the continued strength of the secular teams driving our growth platforms. In Q1, shipments into Asia represented 78% of net sales. Call. North America represented 13% and Europe represented 9%. We estimate that approximately 35% call.
Our shipments is consumed in China. Total direct sales represented approximately 14% call. And sales to distribution represented approximately 86%, and our POS represented another quarterly record. Call. Our distribution business remains balanced with 31% of the total POS coming from the high end consumer end market, 37% coming from the infrastructure end market and 32% from the industrial end market.
Call. Q1 bookings increased on both a Q over Q and year over year basis call. And once again represented a new quarterly record and resulted in a book to bill well above 1. Call. Those bookings accounted for approximately 17% of shipments during the quarter.
Call. Q1 non GAAP gross margin increased 50 basis points sequentially to 62%, call, which was at the high end of our guidance range due to a more favorable product mix. For Q2 and fiscal year call. 22, we continue to expect our gross margin to trend higher as we expect net sales growth to come from our growth platforms call that tend to have higher margins. We believe that we can continue to mitigate the higher costs associated with the challenging global call.
Supply chain through slower customer pricing reductions or through price increases. Call. Q1 non GAAP operating expense increased 3% to $64,100,000 was driven by the negative impact of the weaker U. S. Dollar and higher new product development expenses.
Call. For the rest of fiscal year 2022, due to the weaker U. S. Dollar, we expect our non GAAP operating expense to be slightly above current levels. Call.
In Q1, we were pleased to see our operating profit on a sequential basis and year over year basis grow significantly faster call. Than our revenue due to gross margin expansion and modest growth in operating expenses. We expect to see Continued operating leverage as we go through the year driven by revenue growth from our LoRa enabled, our Tri Edge call. And our industrial protection platforms. As a reminder, beginning in fiscal year 22, we started using a normalized non GAAP tax rate of 13% for the full fiscal year call.
That we believe reduces the variability in non GAAP tax rates that can occur throughout the year. Call. We will update this tax rate annually at the beginning of each fiscal year. In Q1, our cash flow from operations increased 20% Sequentially to $33,000,000 or 19 percent of net sales. Our free cash flow increased 61% sequentially call.
So 16% of net sales compared to our long term free cash flow target of 25% to 30% of sales. In Q1, we repurchased approximately 361,000 shares of our outstanding stock for $25,000,000 Resulting in $364,000,000 remaining in our outstanding authorization that was expanded by our Board during the quarter. Call. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments and pay down our debt. Call.
Accounts receivable in Q1 decreased 6% from Q4, while days of sales increased a day to 37 days call and remains below our target range of 40 to 45 days. In Q1, net inventory in absolute call. Dollar tons increased 7% sequentially and days of inventory increased to 126 days from 116 days at the end of Q4 call. And remains above our target range of 90 to 100 days. We expect our net inventory to remain above our target range to support call.
Stronger demand and to address the tighter supply chain environment. In summary, fiscal year 22 is off to a strong financial start. Our growth platforms are showing strength. Our gross margins are expanding driven by those platforms. Call.
And our optimized operating expenses are leading to a rapidly expanding operating margin. Our cash flow generation remains strong and we continue to focus on the execution of those things that we can control call. And believe the long term secular nature of our growth engines position us nicely for strong growth and a record financial performance call. In fiscal year 2022 and beyond. I will now hand the call over to Mohan.
Thank you, Emeka. Good afternoon, everyone. I will discuss our Q1 fiscal year 2022 performance by end market and by product and then provide our outlook for Q2 of fiscal year 2022. In Q1, net revenue increased 3% sequentially and 28% over Prior year, dollars 270,400,000 Higher demand across all 3 of our end markets drove the Q1 growth. Call.
We posted non GAAP gross margin of 62% and non GAAP earnings per diluted share of $0.53 In Q1, net revenue from the high end consumer market increased 8% sequentially and 52% over the prior year and represented 32% of total revenues. Approximately 21% of consumer net revenue was attributable to mobile devices and approximately 11% was attributable to other consumer systems. Call. Net revenue from the industrial market increased 1% sequentially and 41% over the prior year call and represented 32% of total net revenues. Net revenue from the infrastructure market increased 1% sequentially and 6% over the prior year and represented 36% of total revenues.
I will now discuss the performance of each of our product groups. Call. In Q1 of fiscal year 2022, our Signal Integrity Product Group grew 7% sequentially and represented 39% of total revenues. Demand increased across our data center, PON and wireless space station businesses. Call.
In Q1, revenue from the data center market increased as demand for 100 gigabit per second optical modules continued to increase. Call. Data center bookings grew strongly in Q1 and we are expecting strong growth for the rest of the year driven by 100 gigabit per second, 200 gigabit per second and 400 gigabit per second optical modules. Momentum for our triage PAM4 CDRs in In the 100 gig, 200 gig and 400 gig optical systems is increasing as these design wins transition to production over the next few quarters. Call.
Our Tri Edge products experienced record bookings in Q1 as customers begin early deployments that are expected to ramp at global data center customers in the second half of this fiscal year. We expect our revenue from Tri Edge optical modules to grow nicely in FY 2022 and over the next few years as more programs move to production. Our FiberEdge PMD platforms are also doing well As they complement our ClearEdge and TriEdge CDR platforms and DSP based modules, where customers are taking advantage of the higher performance and increased integration provided by FiberEdge. We are pleased with our progress in the PAM4 optical module market And are increasingly confident that the lower power, lower cost and lower latency that Tri Edge provides together with FiberEdge's higher performance and integration Should enable our hyperscale data center business to continue to grow and achieve a revenue record in FY 2022. Call.
In Q1 of FY 2022, our PON business increased, led by another record quarter for 10 gig PON revenue. Call. In Q1, we had record PON bookings driven by demand from Chinese, European and North American service providers call that we believe bodes well for future growth from our 2.5 gig and 10 gig PON platforms. Semtech provides the most comprehensive PON portfolio available in the market and is the leading provider of 10 gig PON solutions for both the O and U and OLT segments. Call.
We believe we are well positioned to benefit from the increasing global demand for higher bandwidth, access connectivity and expect our PON business to grow nicely in FY 2022. In Q1 of FY 2022, revenue from wireless base stations increased call targeted at frontwall optical modules for the 5 gs wireless market. We expect 5 gs wireless deployments to accelerate in the second half of fiscal year call. 2 and continue to ramp for several years. In Q2, bookings for our Signal Integrity product group reached a new record as demand for high bandwidth global infrastructure continued to increase.
We expect these businesses along with our video business And our emerging LiDAR business to drive sustainable long term growth for our Signal Integrity Product Group. Call. In Q2 fiscal year 2022, we expect our Signal Integrity revenues to increase and achieve a new quarterly revenue record on higher demand from the data center and PON markets. Moving on to our Protection Product Group. Call.
In Q1 of fiscal year 2022, net revenues from our protection product decreased 5% sequentially call and increased 13% annually and represented 27% of total revenues. In Q1, protection smartphone revenue declined call. As some smartphone customers experienced supply constraints not related to Semtech, impacting their ability to build complete systems. Call. Demand and bookings from our smartphone customers continues to increase and we expect revenues to recover in the next few quarters.
Call. In Q1, demand for our protection devices from the broad based industrial market continued to grow call and experienced record bookings as our diversification efforts into the broader protection market, including the automotive and IoT markets gain momentum. Call. Many of today's high-tech systems are using more advanced process geometries that require robust, higher performance protection technology to prevent damage to their highly sensitive devices. We expect this secular trend to continue and drive increased adoption Of Semtech's protection platforms in mobile systems and increasingly across broad based industrial, automotive and communication systems call.
That should enable our protection business to deliver double digit growth over the next several years. In Q2 of fiscal year 2020 2, we expect our protection revenues to increase nicely, driven by strength from all segments. Turning to our wireless and sensing product group. In Q1, revenues from our wireless and sensing product group increased 7% sequentially and 78% over the prior year and achieved another quarterly record and represented 34% of total revenues. In Q1, as expected, Our LoRa enabled platforms delivered another quarterly record as the LoRa momentum starts to accelerate globally across multiple use cases.
Call. We recently announced a number of new initiatives that further demonstrate the value that LoRa Technology delivers to emerging IoT applications. These included EchoStar joined the LoRa Alliance and launched an initiative to use LoRaWAN Networks to bring call. New lower cost satellite based connectivity services to the logistics, asset tracking, utility and agriculture segments. Call.
SAS, a leader in IoT Software Analytics and Services announced the use of LoRaWAN together with its SAS AI platform call. And in conjunction with Microsoft Azure, we'll offer a suite of end to end solutions to resolve real world issues associated with flood prevention, call, Precision Agriculture, Livestock Wellness and Smart Energy. InView, a global leader in retail systems Announced the integration of LoRaWAN into its InView Live platform to improve the retail shopper experience. Call. And the MXC Foundation announced a LoRaWAN network using personal gateways similar to the recently announced Helium network, call, over which individuals can mine cryptocurrency.
We are seeing more of this type of shared LoRaWAN network model emerge, Which is contributing to the rapid growth in LoRaWAN gateway deployments. These are just some of the examples of emerging use cases with the low power, call. Long range and flexibility of LoRa is enabling a smarter, more connected and sustainable planet. In Q1, our LoRa business metrics continued to progress well against our targets for FY 2022. The number of LoRa networks Network operators grew to 151, and we are expecting 165 LoRa network operators by the end of FY 2022.
Call. The cumulative number of LoRa end nodes deployed increased to 191,000,000 and we expect this number to exceed 235,000,000 cumulative end nodes by the end of fiscal year 2022. The number of LoRa gateways deployed increased to more than 1,700,000 And we expect the number of LoRa gateways deployed to increase to over 2,000,000 by the end of fiscal year 2022. The LoRa opportunity pipeline now $700,000,000 and by the end of FY 2022, we are anticipating our opportunity pipeline to exceed $850,000,000 call. We anticipate that on average 40% to 50% of the opportunities currently in the pipeline will convert to deployments over a 24 month timeline.
Our opportunity pipeline remains geographically well balanced with use cases primarily in smart utilities, smart logistics, asset tracking, smart home and smart cities. These metrics demonstrate the growing adoption of LoRa across a broadening low power wireless landscape. With this strong momentum And along with the continued influence of the LoRa Alliance, we expect to continue to drive LoRa to become the de facto standard for the global LPWAN market And what we expect to be a multibillion unit industry in the next 5 years. In Q1, we experienced record quarterly demand for our proximity sensing call led by continued strength from our Asian smartphone customers. As global RF power regulations become more broadly adopted, call.
Driven by environmental and social health concerns, leading smartphone manufacturers competing on a global stage Are implementing proximity sensing technology into their 5 gs devices. Semtech's leadership and highly innovative proximity sensing platform Delivers the industry's most advanced, lowest power and highly integrated proximity sensing technology. With the increasing use of 5 gs phones call and the increased deployment of high powered radios across the whole mobile industry, we expect the demand for our proximity sensing platforms to increase over the next few years. Call. For Q2 of fiscal year 2022, we expect net revenues from our wireless and sensing product group to increase And deliver another record quarter led by new records from our LoRa and proximity sensing businesses.
Moving on to new products and design wins. Call. In Q1 of fiscal year 2022, we released 11 new products and achieved 3,036 new design wins, which represents a 38% increase over the previous year. Now let me discuss our outlook for the Q2 of FY 2022. Driven by the record bookings in Q1, we entered Q2 with record backlog and we are currently estimating Q2 net revenues to be between $177,000,000 $187,000,000 To obtain the midpoint of our guidance range For approximately $182,000,000 we needed net terms orders of approximately 1% at the beginning of Q2.
Call. We expect our Q2 non GAAP earnings to be between $0.57 $0.65 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. Operator?
That everyone limit themselves to one question and one follow-up per person. One moment please while we poll for questions. Call. Our first question is from Tore Svanberg of Stifel. Call.
Please state your question.
Yes. Thank you and congratulations on the strong results. Mohan, you just indicated there that you only need 1% turns to meet the midpoint of the guidance. I'm Just wondering why you wouldn't guide higher? Is it simply because of capacity constraints?
Because I honestly can't remember the last time you only did 1% turns.
Call. Yes. So, Tore, I think since I've been the CEO over 15 years now, that's been that's clearly the lowest number of terms. I think The key thing to remember, so booking is extremely strong, demand is extremely strong. What we are very what we're monitoring very closely is consumption.
We want to make sure that whatever we ship has been consumed. And so it's really we don't need any more terms for sure, but we are monitoring our POS activity to make sure that everything we see from our customers and our distributors who are servicing those customers is being And that really is why we are being fairly conservative on the terms number on the guidance and the outlook.
Call. That's great. And as my follow-up, could you just elaborate a little bit on both 5 gs and data center? It sounds like your visibility is improving quite a bit there. Call.
Is that tied primarily to obviously continuous data center upgrades, but then also 5 gs deployments in North America? Or Is China still in the mix here?
So for 5 gs, for sure, it's all regions. I would say China is definitely in the mix still and we are seeing call. Some indications the second half is going to be quite strong for 5 gs. And then on the data center side, yes, it's call. Mixed bag, obviously, 100 gig is doing extremely well at the moment.
We're expecting 200 gig to start to pick up in the second half call. And actually starting Q2 and then picking up nicely in the second half as well. So we expect data center to have a pretty good year.
Great. Thank you and congrats again.
Thank you.
Our next question is from Tristan Gerra of Baird. Please state your question.
Call. Hi, good afternoon. Could you talk about the gross margin drivers in the second half? How much of that is call. And by mix and presumably data center versus price increases.
And also if you could remind us where does your
call. So Tristan, thanks. Call. As I said in my prepared remarks, we are seeing a lot of gross margin uplift That we expected from our new product areas, our launch and download, our triage platforms, our industry Protection platforms, the wireless and all those things. So we are seeing a lot of gross margin expansion from them.
And the expectation is that call. As we go through the second half of the year, we should continue to see accelerating revenues from those platforms. So my expectation is that We'll continue to see gross margin expansions going forward. With regards to the wireless side of stuff, The gross margins for the wireless business is above the corporate average at this point.
Great. And are you supply constrained currently?
There's pockets of supply constraints, Sure, Tristan. I think one thing about us is really about a year ago, over a year ago, we made the decision Strategically to put in place more internal inventory, which you can see, we're above our target range, our model range And internal inventory and that has helped us for sure. So we're in a position where we're quite comfortable for this year. We'll have the Apply to grow significantly and probably for next year. Obviously, there are pockets of constraints where demand suddenly comes across us and call.
We see a sudden increase in certain areas and it's difficult to get the upside supply to support that. But in general, I think we're in pretty good shape.
Call. Hello. First and this is Emeka. I just wanted to make sure that my comments on gross margin on the wireless That you understand that I'm talking about your YMS base stations, right? 5 gs.
5 gs and stuff. Correct.
Great. Call. Thank you.
Our next question is from Karl Ackerman of Cowen. Please state your question.
Carl, could you speak up a little
bit, please? We're having a tough time hearing you.
Is this better?
Go ahead.
Great. Thank you. Could you discuss the number of designs you now have for PAM4, call. Particularly around 200 gig and 400 gig that are expected to see probably greater adoption at least across one major hyperscale
or whatever it's fall. So If
you could just talk about just the number of designs you see there, that would be helpful.
Yes, we I can't talk specifically, Kyle, but we have about 25 kind of design in, design win activities going on at the moment. And I think some of those are starting to call. Move to design wins and some of them even going to production. So, and obviously we're getting orders now. So, call?
The momentum looks quite good. It's our 1st set of products that are coming out. Now we have the opportunity to bring more call. Products out that have a little bit longer reach and a little bit more variance of our Tri Edge platform now that we've gotten Through kind of the first cycle of learning from them. So I expect over the next year, we'll release more products.
And I think over the next few years, we'll have some good momentum call. In 100 gig, 200 gig or 400 gig and then beyond that depending on what roadmap looks like at that point. Call.
Great. Thanks for that. I guess for my follow-up, in your protection business, I know you have historically been concentrated call. Mobile, I know that you highlighted, at least in your prepared comments, some opportunities Within automotive and industrial, and I was hoping you could just detail that in a bit more detail that is supporting your this business over the next couple of quarters? Thank call.
Yes. I mean, our protection business, obviously, historically, it's been very strong in the mobile segment. And as you know, we diversified within that We used to have a lot of exposure to Samsung. We now have exposure to other North American smartphone manufacturers, China manufacturers, call. Wearables, display, so we've diversified within mobile, but outside mobile, which is where the focus of our R and D, a lot of focus of our R and D efforts have been call.
For interfaces, high performance interfaces in comm communications infrastructure like Ethernet ports, call. Automotive infrastructure, IoT, HDMI 2.1 ports, USB C. And what we found is across the whole Real communications automotive space, there is an increasing need for those high performance interfaces in new systems. And so That's what a lot of our focus has been put. We put a lot of focus into that area.
And clearly now, that's about 35% of our Protection business is now in that area. And so it's starting to grow in the right direction. That's obviously accretive to gross margins as well. So We feel good about the momentum there. We just have to it takes time.
That's not a segment that grows rapidly, but it's very call? It has much longer life cycle. So I think it will just continue to drive good growth for us over many years.
Call. Thank you.
Our next question is from Quinn Bolton of Needham. Call. Please state your question.
Hi, guys. This is Michelle on for Quinn. Thanks for taking the question and congrats on the results and solid execution. So my first one, just on seasonality. If I'm not mistaken, you guys typically have a slightly more back half weighted year.
But given the growth that you guys are expecting in back half of fiscal 2022, particularly with Signal Integrity and the Aurora businesses, would it be reasonable to think that the second half might actually be call. More than slightly above 50% of fiscal 2020 revenues or would you think that Revenues might be kind of in line with typical seasonality.
Well, obviously, we're anticipating a very strong second half call. As well as a pretty strong first half. Actually, our Q2 guidance obviously indicates that No, we're comfortable with Q2. We have very strong backlog for supporting a very strong Q3 and even for Q4, we're starting to get very comfortable with that. So it's looking like the seasonality this year will be tricky to kind of call.
Normally Q4, we would Like Q4 to come down, that's still the expectation to some extent, but given where most of our growth engines At the moment and some of the anticipation that some segments like 5 gs and data center Probably going to continue to be quite strong in the back end. We may see less of a decline, but that's a long ways off yet. Call.
Yes. Okay. That's helpful. Thanks. And then just my follow-up.
On your on the last call you guys had, you mentioned the protection business is It's expected to grow. I think you guys had double digits in fiscal 2022. Just wondering if the softness in the smartphone side of the business call. During the Q1, if that has maybe changed your expectations for the year, if you're maybe expecting Slightly lower growth or what have you for fiscal 2022? Just any update that you might have there would be helpful.
Call. Yes, actually it's the contrary. I think we're even more comfortable that protection is going to grow very nicely this year. Remember what I said in my Prepared remarks on the consumer business, particularly the smartphone business, most of the I mean, there was a slight decline in our Protection business, but a lot of that decline was driven by not demand and not by customers not wanting the materials, but then not being able to get Enough components from other suppliers. And so that's not a demand issue and I think we'll see that pick up Throughout the rest of the year.
So we're still expecting pretty good growth for our protection business this year.
Okay, great. Awesome. Thanks and congrats again.
Call. Thank you.
Our next question is from Harsh Kumar of Piper Sandler. Please state your question.
Call. Yes. Hey, Mohan, Emeka and the team just fantastic job here. I love what is happening in your business. I had a strategic question, Mohan.
Call. Your company is humming and going. The question is, when do you see yourself coming to scale? Call. It's just a situation where what kind of op margins are possible do you feel with a company like yours and a model And what revenue do you start to maybe get into the 30% range for the op margins?
Pick a number that you want to talk about, I guess, from aspirational Same point in our margins.
Yes. So Harsh, this is Emeka. Let me take that. I think the last On the list that we had probably 2 years ago or something we talked about our expectations of our operating margin and non GAAP is to be in the 32% The 36% range. Given the traction that we are seeing from our growth platforms and the gross margins that they come with call.
And the way we've typically managed our operating expenses, which we do expect to continue despite the FX headwinds that we're And at this point, we do believe that at $1,000,000,000 of revenues, we should be at the low to the midpoint of that range.
Call. Okay. That's Emeka, that's very helpful. And then Mohan, I just want to say I've never I've covered your company for over a decade. I don't think there are very few times that Seeing you this optimistic about your business.
I think I get the message that you feel extremely good about call. Exceptional growth for much of the remainder of the year. If you can just reassure us that that's the case based on Whatever visibility you have in terms of bookings and backlog. And also are you covered up on the supply to be able to meet this kind of exceptional growth? In other words, can we expect, call?
Call it 5% to 6% sequential growth consistently through the rest of the year outside of the seasonally down Q4?
Call. So let me take the supply part of that first, Harsh. I think we are comfortable with the supply. As I mentioned, we put in place inventory strategically call? For this scenario and I think it's playing out to our advantage.
Obviously, there are always mix issues and so one has to Continue to manage that and monitor that and things do change. So, but at this point in time, we feel quite comfortable that we can supply call. To the current demand levels. And then on the demand side, yes, we are very confident. A lot of the growth is coming from platforms we've invested in for many years.
As you know, LoRa has Taking us quite a while and it's not a short term investment. This is something that's been invested we've invested in for many, many years. And When you build a foundation that's structured that way, it can be very successful. Obviously, as you know, we Had to be very patient, but things are starting to play out quite nicely now in that business. I feel very good about it.
We've said, call? We expect 40% CAGR and I think we're very comfortable with that number. So the lower enabled business is looking very strong. Call. Our other growth engines, as you know, proximity sensing, again, another platform we've invested in for many years, starting to play out because of the 5 gs and High power radio, so a lot of trends going in our favor there.
The data center side, we've invested heavily in 100 gig NRZ platform, we've invested heavily in PAM4 platform, Tri Edge and Fiber Edge and so those are Playing out well as well. 10 gig PON is another growth area where we've invested in heavily for many, many years. And so that's playing out quite nicely. That's going to be another good A growth driver for us, I mentioned 5 gs wireless. It's a little bit lumpy, as you know, with comm infrastructure, but I think that also is going to do quite well.
And then on the protection side, I think this is one of the areas where we're really pleased to start to see the diversification play out. Call. And the broader protection business has a much larger TAM potential. It takes time, But as we start to see that gain momentum, I feel very good about that business because it's very accretive to gross margins obviously. And I think The more momentum we get there, I think the better for the company.
Thank you, Mohan, and congratulations guys once again.
Call. Our next question is from Craig Ellis of B. Riley Securities. Please state your question.
Yes. Thanks for taking the question and congratulations team on the great execution. So Mohan, I don't typically ask about the end markets, but I thought there was something interesting in them. So I wanted to direct my first question that way. So great to see high end consumer call.
Up 52%, industrial up 41%. The question around infrastructure, which is up 6% is we can all see that the Enterprise spending backdrop was really severely impacted post COVID and that we are far from firing on all call. Cylinders with cloud and data center. But the question is this, with more and more reports suggesting an upturn in enterprise Spending in the other two end markets, is it possible that we'll see infrastructure achieving similar year on year growth rates, but maybe with a call. 2, 4, 6 quarter delay to what we're now seeing in high end consumer and industrial, especially given the product cycle Positioning that you talked about through your prepared remarks and Q and A.
Yes, Craig. We're very positive about Infrastructure, I think infrastructure did quite well last year. And so I think that's what part of the challenge with the year on year growth. But Definitely 10 gig PON, I mean PON in general, I think so excess bandwidth, I think we're going to we're expecting very strong growth this year. Call.
We're still expecting some growth in hyperscale data center this year. And so for me, That's an interesting data point given the inventory that was built up. And so I think we're starting to see in general call. Some of the infrastructure space segments coming back and these segments tend to be a little bit more lumpy. You get a kind of call?
A spate of investment and then a lot of deployment and then there's a kind of a period of digestion Jen, and then it comes back again, but it will be up into the right. There's no question that the need for infrastructure across All of our segments that we play in hyperscale, 5 gs, 10 gig PON, is there, the need is there. And then when you add to that, some of the other emerging segments, I think that for sure it's going to still continue to grow.
Call. That's
great. And then switching gears over to LoRa, and I'm surprised there wasn't a question already, although many good ones asked. But with regards Laura, there's been a lot of talk on calls similar to this over the last 3 or 4 quarters about the potential for high volume call. Endpoint wins and we do still have that nice year end program bogey out there. So The question is this, how are you feeling about the potential with some of your bigger customers or partnerships to secure some high volume wins?
Call. And when would you expect to get some visibility that those might ramp?
Well, we feel good about it. I think My sense is we're going to have a very strong year even without that. To be honest with you, Craig, I think we've got a lot of momentum call. In the business through just globally and some of the recovery from COVID from last year's call. And so I think a combination of some use cases really starting
to grow
nicely, More new products that we with our lower edge platform that's driving new opportunities. And I think now with more gateways being deployed, If you do monitor the number of gateways deployed, you'll see a pretty large acceleration in the number of gateways. We had 1,300,000 Gateways deployed by the end of FY 2021 or the end of FY 2022, we already have 1,700,000 gateways deployed. So I think that all tells me that things are going in the right direction. And yes, we continue to work obviously with some very big guys who are working Some very nice use cases and we'll see, always the proof is in the pudding and if those use cases get deployed and how much business that can drive for us.
Call. In the end, I think when we look at LoRa, we look not just for one use case or one customer or one region, we're looking across the whole landscape call. Low power wireless connectivity and really monitoring the progress across the board. And I would say it's very exciting.
Call. Good to hear. Thanks so much, Mohan.
Our next question is from Gary Mobley of Wells Fargo. Call. Please state your question.
Hey guys, thanks for taking my question. I want to ask about your inventories call. And maybe what they're signaling. So you're running, what, 26% above the high end of the call. Inventory days target and it's up sequentially.
Again, speaking of your own inventories, call. We don't know, however, what your distributor inventories are. Can you and I know you don't normally disclose that, but can you give us a sense of the sequential direction in your Distributor inventory, seemingly you're having a little bit easier time than some of your peers in securing call. Some wafer supply and finished product and whatnot. And so my question related to all this is, call.
Given that you seem to have adequate inventory, is there less motivation for your end customers or your distributors call? Double order or order more product than they actually need.
Call? Well, that's a good question. I think one of the things we're doing so first of all, Florent, your question on distributor inventory. Distributed inventory from our standpoint is pretty low, continues to reduce. Demand is extremely strong though and bookings are extremely strong.
Call. So the thing we do, Gary, is we monitor our POS very closely. So that's shipments out of our distributors to our customers. And we talked to our end customers and we tried to get a gauge on consumption. And the consumption is really the key, right?
Because as long as you're shipping to call? Consumption levels, which we believe we are and we believe we can continue to support consumption levels, then I think we'll probably we can continue to see call. Growth in the business and so that's the game that we're playing. I don't know if Emak, you want to add anything to that?
No, yes. I think just like I said in my remarks, Gary, like Mohan said, the bookings are very strong. The demand is very strong. So call. With regards to sort of the question you have is the motivation for our distributors call.
To maybe double book a step, I don't think we're seeing any evidence of that. What we are definitely seeing though is that the evidence of the Sort of by being able to get have access to inventories in the long run. So we are seeing these guys placing orders And maybe requesting them out into the future and things like that. But like Mohan said, we are managing these things very clearly, call? Very concisely, I think we're very happy with where we have what we have in terms of the internal inventory, knowing that we are very well Positioned for the most part to support the strong demand that we're seeing, but at the same time trying to make sure that we're not just shipping to have stuff call.
Rest in, Alan, in terms of the distributor shelves, right.
Sure. Appreciate the color. So a follow-up, I wanted to ask about your TiA LiDAR products, in particular with your recently announced extension or perhaps new relationship with Intel. Is this LiDAR for industrial applications, LiDAR for automotive applications? Call.
In general, how would you size up your market opportunity for your TIAs in particular in the LiDAR market?
Call. So from an end market standpoint, it's very much a platform for Intel and Intel's use for All their applications, whether that be in industrial, I think the first target is industrialconsumer and then automotive eventually. I would say that It's more of a longer term opportunity, Gary. We've obviously we're working with them very Closely, but there's still technology challenges and market validation and stuff like that. But the technology development Is what we call one of our emerging growth engines.
So if I look at our current portfolio of growth engines, which includes LoRa and proximity sensing and call. Tri Edge and some of the products, those are all in growth phase, but we have a number of call. Follow on technologies that are coming on and Lidar is one of them, which we've invested in for several years now. Call. We'll continue to invest in for another several years, I think, and hopefully that will become a very good growth driver for us In the future, but I think it's early days, but it's good to be working with a partner like Intel and hopefully it will turn into real business for us.
Thanks
Mohan. Our next question is from Christopher Rolland of Susquehanna. Please state your question.
Call. Thanks guys. Mohan, you had mentioned gateways and that 400,000 number, which was pretty impressive.
Call. Can you
remind us on or update us on content per gateway now? And then also if you can talk about kind of the drivers of gateway, I think you hinted to some of those, but talk about the mix of revenue call. Gateways versus nodes now and some of the changes that we've seen as of late and how you think those will trend?
Call. Yes. So we have 191,000,000 end nodes connected now. It's a cumulative number, so connected to those gateways. The number of gateways out there now with being 1,700,000 actually that supports well over 5,000,000,000 sensors.
So we have plenty of capacity out there call? For more sensors, so that's a good thing. The thing to remember about gateways, we have different types of gateways. We have macro gateways, which Go on and towers, 30 kilometer range, those are $1,000 kind of gateways. On the other end of the scale, we have Pico cell gateways that are $100 and very low cost and call.
Really targeted at indoor use cases, support 5,000 sensors, things like that and about a 1 mile range. So a range of different gateways and every use case and every customer has a different application And they can deploy different types of gateways in some cases or where they're doing indoor and outdoor connectivity. Call. So it very much varies, Chris. I think the key thing though that what's driving the sudden acceleration call.
One of the use cases I mentioned is this concept of building up a network call. That then monetizes the person who is using the gateway or who has the gateway in their house or in their enterprise and that call? Monetization through cryptocurrency. As you know, that's the helium approach and there are other companies now thinking about that and doing that. So That's pretty exciting for us.
We'll see it's a new use case. We don't know if it's going to really fly longer term, but it sounds like a very nice interesting opportunity And one in which you're doing real stuff. I mean, people are using gateways for monitoring, tracking assets and tracking Important things in their life or using it for special kind of monitoring of low power sensors. So call. Yes, it's a really interesting application.
There are other use cases that are now starting to drive more gateway deployments, I think, call. I think not only the smart home, but the smart asset tracking and logistics in STIX in general, I think is driving the need for more gateways. So that also is another use case. So we're pretty excited by it. We'll see where it leads to.
Call. Great. And my hotspot is on order and backlog as well for that. But actually speaking about that, it does seem like there's from this supplier at least, there's a multi month backlog of gateways call. In the hundreds of thousands of units actually.
So maybe you can talk about that. Are you severely constrained there? Call. When do you think you might be balanced out with demand supply demand balance there? Call.
And then just to confirm, are you saying that there's between $100,000 $1,000 of Semtech call. Content in those gateways? Thanks.
No. So the gateways are one of the prices I was giving you is kind of call? The retail kind of price out there, our content is a couple of $3 to $5 in the call. Small gateways and $30 in the larger gateways. So that's our content.
But coming back to the discussion on Slide demand for gateways. Yes, the constraint is not our devices. The constraints I think that manufacturers are having is on microcontrollers and microprocessors and Processes and other components that go that make up the gateway. Of course, we only develop the radios, right? So call?
We have materials, but I think there is other components that are limiting the availability.
Call. Thank you.
Our next question is from Rick Schafer of Oppenheimer. Please state your question.
Call. Thanks. And I'll add my congratulations, guys. Maybe one more lower question, I know there's been a lot, call. But I know some industry folks are calling 2021 the year of scale for LoRa.
I think the number of LoRa certified sensors is up Something like 35% or 40% over the last year. Where I'm going with the question is, I mean, are we at that are we finally at that tipping point with LoRa here? I And I think if I heard you correctly, Mohan, you talked about exiting this year at about $850,000,000 pipeline, call. Something around 50% of that converting to revenue over the following couple of years. So I mean if you run the math on that, it's Pretty significantly above your 40% CAGR you've talked about for that business.
So I'm just curious if you could maybe I could have misheard you through, I guess, but I'm just curious What's changing and what kind of color you can add to that? And I guess back to the just a question ago, how big of an issue Supply constraint for you in terms of capitalizing on that backlog?
So Rick, I think you heard correctly. I do think momentum It is accelerating now and I think we're starting to see some of that funnel really convert call? To deployments. And that's always been the challenge for us is trying to figure out, okay, we have this huge funnel and we have call. Number of POCs and customers love the technology, when are they going to really deploy.
And I think, obviously, we're set back The pandemic and the China issues over the last couple of years. But I think now we're just starting to see that the realization is this technology really does call. Add value to use cases that related to climate change, related to pollution control, Related to safety, related to asset tracking and logistics, smart home initiatives, smart city initiatives, the technology is really good for it. And so I think what we're starting to see is just the realization that this is some of the POCs that have been going on are now starting to I'll remove the bottlenecks. You mentioned sensors, software is another one.
And with the announcement with AWS on the AWS IoT Core platform, things like that. It really moves it removes the need for software developments and removes some of those bottlenecks. And so I think over time, just those bottlenecks will be removed and then it's very simple to deploy an end to end call. Lower use case. And I think as that happens, we're going to see really this whole call.
Funnel that we have, not only the funnel get larger, but I think the funnel will have a little bit more confidence about the conversion and the rate of conversion Into revenue. And then you add to that, as I mentioned to Tristan with his question that We're starting to see some of the big guys really talk about technology. Call. Amazon really put a lot of discussion around Sidewalk this last quarter, not something that was driven by us. It was Pretty much to them going out and talking about it and we're starting to see others now utilize the technology and talk about their own systems.
And so this is all positive for us. And then we add to that, some of the cloud services and other things that are coming along. It just makes us feel really good about where the business is and where it's headed. So we'll keep monitoring. Obviously, we want to keep growing the number of call.
Gateways deployed, the number of end nodes that are connected and the number of services that are connected and the value that those services provide and that should drive Continued revenue growth for us.
Thanks for that color. And another area call. Harry, that's really it. And I feel like it's hit the stride for you guys is proximity sensing. Do you have a sense of What proximity sensing or what the penetration rate is today kind of where we're at?
Call. Yes, I think today, so most phone manufacturers, obviously they have a range of different phones and the high end Phones, particularly the 5 gs phones and the ones with multiple high powered radios tend to be the ones that they By putting proximity sensing into and then that's so that's one dynamic is where you have more power high powered radios. And then the other thing is depending on where you ship those phones to. So if you're a global player and you ship to Europe and North America, call? We almost certainly need to have proximity sensing in those phones, just because of regulatory requirements.
Those regulations are starting to expand globally by the way. So I do think that the there's going to be an increasing need for more proximity sensing on these higher end phones as we go forward. Call. Sensing on these higher end phones as we go forward. But today, I would guesstimate probably about 30% call.
The phones have proximity sensing.
Thanks for that
color. Our next question is from Scott Searle of ROTH Capital. Call. Please state your question.
Hey, good afternoon. Thanks for taking my questions. Hey, just to go back quickly to lower, I wanted a couple of clarifications, Mohan. I'm not sure if I heard it in your Any comments, but you talked about proximity sensors being at record levels. Was lower at record levels in the quarter?
It certainly looks like it based on the numbers And kind of how you expect that to build over the course of this year? Should we be thinking about sequential growth or even flattish? Because it looks like you're basically honing in on 40% plus growth Where we are today. And it doesn't sound like you're counting on any sort of large scale consumer contribution outside of China call? Kicking in, in the current fiscal year.
Yes, Scott. So, yes, the LoRa was a record Then I expect Q2 to be a record and actually we expect every quarter, Nora, to have a record call. Quarter this year and to achieve that 40% growth at least that momentum is very good for LoRa as well as it is For proximity sensing. And then, yes, in general, I would say that the business is just call. Kind of firing on all cylinders.
It's been for the last couple of years, it's been challenging. I think there's been a lot of headwinds, but I think now we're starting to See that momentum build up and that's just playing out well for us.
Great. And lastly, if I could, on the protection side of the business, you talked about a long term Or intermediate term double digit growth rate. Certainly in the near term, the handset market has been challenged, been constrained by other component availability. And I expect that to bounce back. But when you think about that 10% plus kind of growth and the mix of your current business being more skewed towards mobile, call.
The smartphone market is expected to grow mid to low single digits on a normalized basis over the next several years. So are you Expecting growth faster than that in mobile or the non mobile components in terms of industrial and auto expected to see such strong double digit growth that That's kind of how you get to the 10% plus growth number. Thanks.
Yes, a little bit of both, Scott. I think within mobile, we are expecting call? More diversification there. So we include displays in mobile, for example, we include wearables call. Mobile, so it's not just Samsung phones.
So we expect that to continue to grow. But clearly, our investment Most of our R and D investments are going into the broader protection market. And yes, our hope is that, that can grow well above double digits. We'll see call. How the market itself may not be growing that fast, but the TAM is large and it's converging A lot of the segments within that space are converging to the point where they need to use a higher end protection call?
Because of some high performance interfaces that they're bringing into their systems. And I mentioned HDMI 2.1, USB C, call? No. Ethernet infrastructure and some of that requires more protection, higher end protection. So call.
That's our goal is to try to grow our broader business at a faster rate.
Great. Thank you. Great quarter.
Call.
Our final question is from Tore Svanberg of Stifel. Please state your question.
Call. Yes, thanks. Just some follow-up. First of all, Mohan, now that matter is sort of unifying some of the other IoT call. Should we view ZigBee and some of these other standards as still competitors to call.
LoRa or with Matter, can you start to see more cooperation between LoRa and Matter? Because I know in the past you've talked about sort of LoRa plus WiFi and LoRa plus Bluetooth. And I'm just wondering also if there is a way to see LoRa plus matter.
Call. Yes, we don't really worry about or mind who we're partnering with. It's really driven by customers. If customer says, well, we want to build a system where it's LoRa plus ZigBee or LoRa plus call. Wi Fi or whatever, we'll work with them.
And that's one of the reasons we licensed the IP out certain companies and So they can build different solutions. Our goal is simply to make LoRa the de facto standard for LPWAN in the industry. How we achieve that goal, there's obviously various ways To get there. So, what when we look at LoRa though, the uniqueness of LoRa makes it a very valuable call. Additional radio to have in a system compared to when it's added to 5 gs wireless, for example, you have a very high bandwidth radio And then you have a low power sensor connectivity radio.
There are some technologies call? There is some complement, but it's more of an overlap. And I would say ZigBee Z Wave and Wi Fi as it pertains to call. Low power sensor connectivity, I think are areas where there's maybe more overlap than complement, But most of the technologies, the other radio technologies are very complementary.
That's very helpful. And just one last clarification one for Emeka. Call. When you talked about the OpEx sort of staying at this level, could you clarify what you meant by that? Is that a percentage of revenue?
And call. How much of an impact is the exchange rate having on OpEx, I guess, from a percentage perspective?
Yes. So my comment was actually more towards the absolute dollar amount of the OpEx. I think for our Q2, call. The Q2 guidance, I think non GAAP operating expenses would get into about $65,000,000 or something like that, if I remember correctly. Call?
So that's what I'm referring to that I should expect that the operating expenses for the rest of the year to stay somewhat around call? That area, those levels. With regards to the FX impact, it is actually, if you think about call. The operating expense has been slightly above half the rate of revenue growth that we've talked about before, which is our model. Call?
Most of that is being driven most of that excess, if you will, is being driven by the impact of the weak U. S. Dollar.
Very helpful. Thank
you. We have reached the
end of the question and answer session. I will now turn the call back over to Mohan Mahaswaran for closing remarks.
In closing, we are pleased with our Q1 results And the strong start to fiscal year 2022, the company is benefiting from the strength of our growth engines addressing the infrastructure, Smarter Planet and Mobility markets that we believe will produce provide sustainable long term growth. We have been successfully navigating through the pandemic And more recently, the challenging supply chain environment, we have also doubled down on our commitment to sustainability efforts and our human capital development. Call. Given our diverse product offering, balanced end market approach and strong customer relationships, we expect to deliver a record financial performance in FY 2022. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter.
Thank you.
Call. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.