Silicon Laboratories, Inc.

Thank you for standing by. My name is Jonathan, and I will be your conference operator today. Welcome to Silicon Labs' fourth quarter fiscal 2023 earnings call. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. If your question has been answered and you wish to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Giovanni Pacelli, Silicon Labs Senior Director of Finance. Giovanni, please go ahead.

Thank you, Jonathan, and good morning, everyone. We are recording this meeting, and a replay will be available for four weeks on the investor relations section of our website at investor.silabs.com. Our earnings press release and the accompanying financial tables are also available on our website. Joining me today are SiliconLabs President and Chief Executive Officer Matt Johnson and Interim Chief Financial Officer Mark Mauldin. They will discuss our fourth quarter financial performance and review recent business activities. We will take questions after our prepared comments and our remarks today will include forward-looking statements that are subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward working statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and on the investor relations section of the Silicon Labs website. I'll now turn the call over to Silicon Labs Chief Executive Officer, Matt Johnson. Matt?

Thanks, Giovanni, and good morning, everyone. The Silicon Labs team delivered fourth quarter results above the midpoint of our guidance. During the quarter, we saw reductions in both channel and end-customer inventory. We expect end-customer inventory to be stocking to continue in Q1. On a unit basis, DISTI inventory is now at lower levels than during the supply crisis. We believe Q4 of 2023 represents our low point of revenue. We expect to return to sequential growth starting in Q1 as our customer's inventory starts to normalize and we begin to see the further benefits of design wind ramping to production. We've also seen slight improvements in our weekly bookings activity, but demand visibility continues to be low. We are encouraged by another year of outstanding design wind achievement despite the challenges of the current operating environment. The projected lifetime revenue of our 2023 design wins was up low double digits year over year, in line with the ambitious targets we set. These design wins span a broad range of technologies, applications, and customers, and we are expected to deliver strong growth and earnings power as the market dynamics improve. Before we turn the call over to Mark, I would like to take a moment to express our gratitude to John Hollister, who has stepped down after 20 years of dedicated service to Silicon Labs, 10 of those years as CFO. John's financial stewardship has been instrumental to our success over the years, and his insights and partnerships have been invaluable. On behalf of the entire team, thank you, John, for your outstanding work and commitment, and we wish you the best as you join Global Foundries. In addition, I would like to thank Mark Malden for stepping in so effectively during this transition. I can also share that the search for our new CFO is going well, and we're impressed by the caliber and potential fit of the candidates we're engaged with and are looking forward to concluding the search as quickly as possible. Now, I'll hand it over to Mark for the financial update.

Mark. Thanks, Matt, and good morning, everyone. Fourth quarter revenue was $87 million, above the midpoint of our guidance and down 66% year-on-year. ASPs declined sequentially in the quarter, primarily due to product and customer mix. Unit volume was also down on a sequential basis. Revenue was down year over year for both business units in the quarter. The industrial and commercial business unit ended at $60 million, down 62% from the same period last year and 51% sequentially. All three product groups in IMC declined in the fourth quarter, with the broad industrial category experiencing the largest decline. However, for the full year, the smart city and commercial product groups achieved record revenue levels, driven primarily by strength in electronic shelf labels and metering. Weak demand and high customer inventories continue to negatively impact the home and life markets. H&L revenue was down 73% year-over-year and 67% sequentially at $27 million. Despite the near-term weakness, we are well positioned as demand recovers and inventories normalize, with growth expected in smart home and particular strength in connected health. Successful market initiatives are driving H&L design wins above our targets in terms of projected lifetime revenue. Distribution revenue was 63% for the fourth quarter, down sequentially, and well below our typical levels. Inventory in the channel decreased to 79 days, and on the units basis, DSTI inventory was down to its lowest level since the divestiture. The decrease in DSTI mix in the quarter was due to a temporary shift toward direct customers as channel partners worked through their inventory. This mix shift also contributed to lower ASPs in the quarter. Our top 10 end customers were about 42% of revenue for the quarter, an increase from historical trends driven by the lower revenue level and the mix shift. Non-GAAP gross margin ended lower than expected at 51% due to product and customer mix. we continue to see a generally stable pricing and input cost environment with no significant change expected on a life-for-life basis in the next four. Non-GAAP operating expenses of $91 million were better than expected, largely due to earlier pull-in effects of the restructuring which commenced in November. Non-GAAP operating loss was $47 million, and our non-GAAP effective tax rate was lower for the quarter at 14 percent. Non-GAAP loss of $1.19 exceeded our guidance, driven largely by the OPEX and tax rate favorability. For the full year, our non-GAAP operating margin was 8 percent. Non-GAAP earnings for the full year were $1.65. On a GAAP basis, gross margin ended at 51%. GAAP operating expenses were $117 million, which was better than expected. GAAP operating loss was $73 million for the fourth quarter and $24 million for the full year. GAAP loss per share was $2.19 for the fourth quarter and $1.09 for the full year. The GAAP results included an approximate $9 million charge for the separation costs associated with the reduction in workforce during the fourth quarter. Turning to the balance sheet, we ended the year with cash and investments of $439 million. Our accounts receivable balance declined in the quarter to $29 million, indicative of the lower revenue levels. Our day sales outstanding reverted back to 30 days, reflecting strong collections in the quarter and no known bad bets from our customers. We added $27 million in net inventory in the quarter to 194 million. We anticipate that our internal inventory will level off in Q1. Inventory terms ended at about one time. As a reminder, we hold a significant portion of our inventory in Dibank, which provides flexibility as to its ultimate end-use application in customers and helps to mitigate inventory obsolescence risk. We continue to have $45 million outstanding on our revolving credit facility. Our board of directors has authorized a new share repurchase program in 2024 for $100 million. We will continue to be very opportunistic on share repurchases as we manage liquidity and optimize the use of working capital. Overall, the balance sheet remains very healthy and well positioned to execute our strategy and weather the current market environment. As we announced last week, we identified a material weakness in our internal controls related to the operation and documentation of certain inventory controls. There was no impact to any amounts reported in our current or historical financial statements. We are in the process of developing a plan to enhance the design and operating effectiveness of our internal controls to address the material weakness and still expect to file our Form 10-K in a timely manner. Before returning to call the mat, I will cover guidance for the first quarter. We expect revenue for the first quarter to be in the range of $100 to $110 million. We anticipate both business units to grow in the quarter. We expect non-GAAP gross margin in the first quarter to be approximately 52% The lower gross margin for this quarter continues to reflect the fixed cost absorption over lower revenue levels. We expect non-GAAP operating expenses in the first quarter to be approximately $96 million. We expect the non-GAAP effective tax rate to be approximately 20% in the first quarter. Our non-GAAP loss per share for Q1 is expected to be in the range of $0.92 to $1.04. On a GAAP basis, we expect gross margin to be 52%. We expect GAAP operating expenses to be approximately $118 million. And we expect GAAP loss per share to be between $1.89 and $2.05 per share. I will now turn the call back over to Matt. Thanks, Mark.

Looking ahead in 2024, we're excited about several trends in wireless connectivity, including more Matter certified products coming to market, as well as strong growth in our light, smart cities, and commercial segments. In Q4, the CSA released Matter 1.2, which extends the benefits of Matter to a wider array of devices, including household appliances, air conditioning, and smoke alarms. At CEF this year, we were encouraged by the strong level of engagement with customers, ecosystem partners, and ISPs regarding the Matter protocol. It's clear that interest in Matter and the availability of Matter-enabled devices is accelerating. As part of this, we announced our collaboration with Arduino to make Matter protocol and advanced IoT development more accessible to all. We are partnering to integrate Arduino's first-ever Matter software libraries with Silicon Labs hardware so developers get our leading security, energy efficiency, and processing power for Matter in an intuitive, easy-to-use development environment. Additionally, Samsung recently announced Matter-enabled connectivity in its smart TVs and selected appliances that includes our silicon and are currently hitting the market. We're excited to work with Samsung on their SmartThings platform as they expand their Matter-enabled ecosystem. Wi-Fi is playing an increasingly important role in IoT devices, including in conjunction with Matter. In Q4, we expanded our portfolio of industry-leading Series 2-based products. with a soft launch of our ultra-low power Wi-Fi solution, the 917, which was selected as an honoree in the embedded category of the CES Innovation Awards. The 917 has the lowest power consumption of any competing Wi-Fi 6 product on the market, enabling meaningfully longer battery life to a whole new class of applications. We believe this will continue to drive new opportunities and design wins as customers look to integrate Wi-Fi into their products. In our life segment, we are securing new wins in connected health and APAC, where we are engaged with more than a dozen customers for continuous glucose monitoring. The demand for connected health devices is growing rapidly, driven by demographics and an increase in chronic illnesses or diseases like diabetes. And we are confident that our solutions will continue to gain traction and serve this market well. In 2023, we achieved record revenue in our commercial product group as retail environments continued to digitize. For example, in electronic shelf labeling, we ran new designs with SDS and Agatag, now Fusion Group. In addition, we have also secured new design wins in the ESL space for shelf labels, cameras, and sensors with our Bluetooth solutions. The Smart Cities product group also had a record year, driven largely by meters. However, we're also gaining share in the solar market with integrated solutions for both wireless, connectivity, and compute and solar panels, which helps to optimize energy production and increase fire safety. 2023 was a difficult year characterized by weak demand and high inventory levels. While we're seeing things moving in the right direction, the market is still working through its correction. As we've stated, we believe Q4 represents our bottom and we expect to return to sequential growth starting in Q1. In closing, I want to thank the Silicon Labs team for their execution in securing significant design wins and gaining share, prudently managing our expenses, and advancing industry-leading technology and solutions for the IoT. Despite the near-term challenges, the long-term growth trajectory of our end markets and our strong position within those markets remains unchanged. As inventory normalizes, demand improves, and design wins ramp into production, we are well-positioned to return the growth. I'll now hand it back over to Giovanni for Q&A.

Thank you, Matt. Before we open the call for Q&A, I'd like to announce our participation in Morgan Stanley's 2024 T&T Conference in San Francisco on March 5th. We'll now open the call for questions. To accommodate as many people as possible before the market opens, I ask that you limit your time to one question and one follow-up. Jonathan?

Certainly. One moment for our first question. And our first question comes from the line of Matt Ramsey from TD Cowan. Your question, please.

Thank you very much. Good morning, guys. I guess for my first question, and I think during the quarter we talked a number of times about some of these dynamics, but I wanted to get an update on the inventory situation. We see all the statistics you guys publish on your own inventory, channel inventory, and Matt, we take some of your comments on customer inventory, but I imagine that's an average of products where you have tons of inventory of some products in certain end markets, and perhaps you're even still having escalations at other products, and it's a pretty diverse set. So if you could maybe spend a little bit of time talking about areas where you feel like you've cleaned everything up and we're sort of back to normal lead times and normal inventories if you have that visibility, and are there particular areas where you haven't? And just give a little bit more detail, maybe not average metrics, but some specifics by end market. Thanks. Sure. Good morning, Matt.

I understand, I think. Let's see. I'm going to start just working through. Internal inventory, obviously, well understood. By design, we're building dye inventory for the ramp on the other side of this market environment we're in. As Mark said, we kind of expect that to be peaking now, and we feel good about where that's at. There's a ton of flexibility, given that we carry it in dye banks, and we can configure it as needed. Next piece of inventory channel, also well understood. We saw our days go down, as we mentioned. What's remarkable about that is the revenue level that that occurred at. Going from around 200 in Q3 to 87 million in Q4, the actual material in the channel came down significantly. As we commented, it's actually lower than it was in the supply chain crisis. You can see the clear trend and pattern there as the industry tries to and ourselves work down those inventories. The real trick is customer inventory and customer inventory, which is the most difficult because, as you pointed out, you can't get a report that gives you that with precision. And given the geos, technologies, applications, and just the sheer number of customers we have, it's much more difficult to get an exact number on that like we can with the other inventories I already mentioned. So, you know, easy way to say it, if you compare to this time last quarter, what we do is we sample our top customers. Last quarter, it was, you know, 40 to 50. We've expanded that. And what we see and believe is that's coming down. And we're happy to see that. And, you know, I'm not going to imply precision that doesn't exist. We see it coming down. You know, and that's the average across all the customers. And even the count of customers with more inventory than they should is coming down as well. So that's encouraging. We expect that trend to continue through Q1. And it also speaks to, as we've been saying, our, for lack of a better term, end consumption of our product is obviously higher than our revenue levels would imply as we're working down those channel and end customer inventories. So hopefully that's helpful. And I'm not going to put specific numbers out there that imply precision that doesn't exist, but we definitely see it moving in the right direction, which is encouraging.

No, thanks, Matt. That context does help. I realize that we're going through a transitory period. But I guess as my second question, I wanted to ask a little bit about gross margin. There's a lot of pieces moving around, and I got a few investor questions this morning. So first question is just to confirm. I didn't see it in any of the releases, and you guys didn't mention it, so I think this is true. But just to confirm that there weren't any kind of explicit inventory write downs and I guess the second question is any kind of rule of thumb of how gross margin might trend as we come out of this like revenue levels where we can get back within the long-term range the I imagine it has a mixed component between the two segments as well but if you could give us any kind of of guidance there you mentioned in the in the prepared comments there was a little bit of movement on pricing so I was curious about that as well but anything on margins will be helpful

Yeah, sure. I'll work from the detail and then up to the bigger picture to answer that. So Q4, first thing is what I call the low-level gross margin from the beginning, even in the guide, is really driven by that, for lack of a better term, fixed cost absorption at that low revenue level. But it still came in lower than expected, and the reason for that was really around the mix. $87 million of revenue, which isn't indicative of our consumption or a normal operating level, the customers come in lumpy, right? And that resulted in an unfavorable mix that got us to where we're at. We do not expect that to be a permanent trend. But we should be clear, in Q1, we'll still have those challenges of lower than consumption revenue level, and lower revenue than we want to absorb all those fixed costs. So we still see gross margin challenge in Q1, although improving slightly. To answer your big picture question, I think that's critical. And we all know this. We shouldn't be looking at our gross margin in the peak or the trough of these cycles as indicative of the longer-term trend. Back during the peak of the supply chain crisis, we were over 60 by a meaningful amount, and there was an expectation that could be our new normal. We said no. We expected that was a transitory environment, and that's proven out. Right now, we believe we're in our trough, and that's also transitory. We don't believe that that's indicative of our long-term gross margin. Our commitment to our gross margin model that we've said all along has not changed, is unwavering, and we see a continued path to delivering that. And we just have to get through this correction cycle, and that's what we expect to see. So hopefully that answers your question, Matt.

Thank you very much. All the best as you guys manage through this. Take care. Thank you.

Thank you. One moment for our next question. And our next question comes from the line of Thomas O'Malley from Barclays. Your question, please.

Good morning, guys, and thanks for taking my question. I just wanted to first check in on the March quarter. Could you give us some color as to which of your segments you're expecting to grow more into the March quarter just to get to your guidance of 105? And then also, you mentioned in the fourth quarter that units and ASPs are both down as expected with the reset, but can you talk about what you're seeing kind of through the quarter thus far from a pricing perspective? and just how that's playing into the March guidance.

Sure, Thomas. This is Matt. So quick answer on segments. Q1, I would expect both of our end segments to grow in Q1. You know, big picture, you know, it's really tough to call this market environment, but we ultimately believe that, you know, home and life is probably further through its cycle than industrial and commercial. So, if I were to buy it, I would expect more there, but we're not calling specific numbers in our guidance. In terms of the pricing environment overall, no big changes. So, what we've been saying and experiencing seeing is pricing behavior that is very much in line and indicative with this type of environment. No surprises there. It is worth commenting. There is one competitor out there who has done things that I would say are not indicative or typical of this environment. And what I mean by that is setting lower price points and trying to fill fabs and justify capacity. But for us, that competitor doesn't overlap a lot with our portfolio, so not significant. But it would be incorrect to say that, you know, everything is normal if I don't call that one out. But aside from that, seeing very expected behavior, you know, people trying to drum up business, trying to drive, you know, fill their capacity and get demand back up and running. But, you know, if we're just honest about it, the problem isn't pricing. problems, inventory, and the market cycle that we're going through. And no big changes in our outlook or expectations based on what we've seen so far.

Super helpful. And then I just wanted to follow up, obviously, you know, you moved the report here due to inventory controls issue. It looks like you're not really seeing any impact of that in the quarter. A couple things. One, could you maybe give us a little bit more color as to what's going on there if you can? And two, you mentioned that, you know, most of the inventory that you're carrying right now is die bank. Could you maybe give us the split of how much

that inventory is diving because I would assume that if you were looking at inventory controls there'd be more for products so I would assume a smaller portion of your overall inventory any color there would be helpful thank you sure this is Mark for the controls issue late in January we just identified some areas within our inventory accounting process that needed some improvements there we are working to develop that plan to address addressing going forward the way these these things work generally speaking we're going to have to have the new controls in the process and shown as effective at least for more than one quarter so we'll have that item open out out there at least through the first quarter But in general, it just had to do with having more documentation and reviews over some of the assumptions that go into the judgmental aspects of the inventory evaluation.

Thank you very much, guys. Appreciate it.

Yeah, and just a comment, you know, a meaningful majority of our inventory is in Dibank because, you know, for people out there, just importantly understand that while we have a remarkable diversity in our end customers, end applications, what we try to do is not have that same diversity in silicon. So in silicon, we'll have SOCs that address as much market as possible, and they could be, you know, tailored, customized, configured in silicon to address, you know, for lack of a better term, different part members and SKUs and applications the customer needs. And on top of that, there's silicon, I'm sorry, software, flexibility that is substantial as well. So it's really, you know, an advantage for us to carry and die bank and gives us the maximum flexibility to respond and to manage inventory responsibly by taking that approach. So quick answer is that's where most of it is in.

Thank you. Our next question comes from the line of Tori Svanberg from Stiefel. Your question, please.

Yes, thank you. First question is on the home and life business. So Matt, I know this is a difficult question to answer, but I'll ask it anyway. So I think that it peaked at a run rate of half a billion, you know, now the run rate is 100 million. So it's quite stunning. And I'm just wondering if you could unpack a little bit, you know, as you had that half a billion dollar peak, you know, what was cyclicality? and what was more secular businesses. And if you look at the mix today, you know, that $27 million, how much of that is quote-unquote more secular business versus cyclical business? I know, again, it's difficult, but if you can unpack some of that, that'd be great. And I assume you're not going to give us a true consumption number of that business, but any more color you could add would be really helpful.

Yeah, sure, Tori. Yeah, that is not easy to answer, but I'll do my best to provide some perspective and context that hopefully will be helpful. So maybe just going way up to the top, you know, big picture, we haven't provided, you know, an exact consumption number for the company or for the segments, but it can be helpful to remember that We did do some meaningful off-ex actions in Q4 of last year. And obviously, those were with that consumption level in mind. And whatever you do there for cuts, you want your break-even point to be below that consumption level. So that's important conceptually just as a way to help think about it. Going into home and life, it's been, what, four or five plus quarters now of declines that we've seen in that business. We do see, you know, what I call, you know, cautiously optimistic signs that, you know, we're seeing some improvement in booking, seeing some, you know, not push outs anymore. It's more pull ins. But visibility remains low because, you know, people aren't even ordering within lead times. They're ordering on a much shorter basis as they need. I think they're still working through their inventory. They've been rattled. They're, you know, they're uncertain. So I do believe we're much further through that cycle correction, and we're seeing encouraging signs, but not at the level to say we're on the other side of this yet or we're out of the woods. So I want that to be clear. That being said, yeah, we went through a remarkable journey, right? You know, from demand, you know, well, one, I think there was a shift from, you know, services to goods and then back to services. Demand, clients, people wanted you know, expected demand levels would be, you know, continuing in perpetuity, people built inventory. And then there's a whole bunch of trends under there that, you know, are difficult to pull out or tease out or parse out how much is contributing to each. But you have the end market strength, you have the secular positions that are very important, right? Matter is starting to show a lot of strength in there that are prepared remarks. And then we talked about life a few times that, Life has been, you know, durable throughout this because of that secular strength. But at the same time, you know, the design and momentum we've started sharing with the world on that is really just in its early stages. And that will be impactful as well. So I'd say, you know, it's shown resilience throughout this because of those ramps that are starting. But the real growth there and real impact is yet to come. So, you know, and the last piece is the home piece. you know, as an end market, we continue to see solid progress and opportunity there, whether it's trends such as Matter, such as Amazon Sidewalk, such as, you know, just the market finding its footing on the other side of this downturn. You know, what I'm trying to convey is our confidence in that end segment from a growth perspective remains very strong. And, you know, our confidence in our position there also remains very strong as we bring in, you know, really great momentum around Bluetooth where we're clearly gaining share. And we're going to do the same thing in Wi-Fi. And that will help not only firm or stabilize the home for us, but actually grow the home moving forward. So I know that's a lot to worry about. Those are all some of the moving pieces in there. And the punchline is our confidence in the space. continues to be strong. We know we're gaining share, and we see opportunity to grow through some of those trends, like I mentioned, for Matter, Bluetooth growth, Wi-Fi growth going forward.

That's really helpful. I appreciate that, Matt. As my follow-up, I know obviously there's a cyclical balance coming here. That's pretty obvious. But I know on top of that, you also have a lot of new design wins. You have some new secular business that are ramping. You talked about some of the glucose metering, smart metering, shelf labeling, then you've got Wi-Fi. So I guess the real question that I have here, you know, is if you look at some of those newer businesses, any update there and, you know, could these be really material to revenues for calendar 24, especially in light of perhaps some of the most cyclical business at such a low level?

Yeah, understood. Quick answer is yes, that is our expectation. We've been unwavering in our view that we're going through a particularly vicious market cycle that has impacted demand. inventory, the stocking that's substantial. And, you know, we're trying to be clear, we're not calling the market bottom here. You know, we're not out of the woods yet. It's clearly these cycles haven't worked fully through, but we are calling our bottom. And the reason we're comfortable doing that is, you know, we're not calling the rate necessarily, but we do see the confluence of all those things that the inventory to stocking is going in the right direction. we do see our position in the market is strong. And those designs are starting to ramp. Last earnings call, we called out a few that people were unaware of. We just called out a couple more on this call that people are unaware of. And there's more. So these are intended to you know, give some perspective that they're happening. Yes, there's a massive counterbalance with this market cycle. But at some point, those two things will, you know, the ramps are going to continue and only get stronger and the market will work through its cycle. And when those things come together, you know, it looks like we'll be positioned for strong growth when those two happen.

Great. Thank you very much. Thank you. One moment for our next question. And our next question comes from the line of Cody Acree from the Benchmark Company. Your question, please.

Yeah, thank you for taking my question. Excuse me. Maybe you can talk about just your order linearity throughout the last 90 days. You mentioned that orders are coming in with less than your typical turns request. Can you talk about that pattern of orders and how that gives you visibility to the bottom?

Sure. So I'm trying, I don't want to, I'm not trying to make a wise remark. It's hard for us right now because what is normal has really been disrupted over this entire cycle. So I'll start with that. But to answer your question directly, last 90 days, what we've seen is a trend in an encouraging direction where they're increasing. not increasing at the level that we'd like to see, to say, you know, this is done, we're on the other side of it, but, you know, optimistic that they're going in the right direction, which is always important. You know, the visibility continues to be low because, you know, our lead times right now, let's just say, you know, about a quarter, roughly, a little over a quarter, and most of the behavior is customers, the majority of the behavior is customers ordering well within that. So that gives you an indication of what we're seeing. It's also worth pointing out that given where we think we're at in the cycle between, for lack of a better term, the consumer and industrial segments, probably seeing order patterns a little more indicative of consumer and home and life in general being further through the cycle than industrial and commercial. But like I said earlier, we do expect both to grow from Q4 to Q1. So hopefully that helps give some context and perspective. Simple headline, going in the right direction, but still have further to go.

Excellent. Thank you. And lastly, last quarter you talked pretty optimistically about Series 3. That has been a little absent this quarter. Can you just give us an update on how that platform has progressed this quarter?

Yeah, sure. Not absent by design, just in the middle of a lot of work. So a quick way to think about it, Series 2, we've continued to release products on Series 2, couldn't be happier with the impact it's having on the market. Design wins, momentum has been excellent. It's been everything you'd want to see, and it's still in a very powerful spot in its life cycle that it's going to drive growth for us for a long time. Series 3, making progress there, on track to what we've said, what we've committed, and the impact that we expect that that's going to have not only on us as a company, but on our industry. An easy way to think about it, Series 3 takes that platform that is so pervasive, which is Series 2, and gives people the ability to lever that and push even further on all the dimensions that we are industry leading on, whether it's the wireless performance, whether it's the scalability, flexibility, whether it's the compute that our customers want, including AI ML, or, you know, as I said, industry-leading security, even being quantum ready. So the combination of those things has our customers excited. But what I don't want to do, and why you probably know this is not the call, we are, you know, that will be you know, work for us for years to come. And, you know, we're well into it. We're very comfortable where we're at in that cycle. But, you know, we'll be talking about series two for years still, and we'll be talking about series three for years to come. And both will kind of coincide or be parallel to each other for, you know, at least the next five to ten years. So, it's important to have that perspective as we talk about both of those. One's not going away and the other's not replacing it. Very encouraged by Series 3, where it's at in the market, customer response. Great. Thank you, guys.

Thank you. One moment for our next question. And our next question comes from the line of Quinn Bolton from Needham & Company. Your question, please.

Hey, guys. Thanks for taking my question. I guess I just wanted to, you know, you've talked about starting to see some more encouraging orders in the home and life. And you've also said it's sort of further through the inventory correction. Just wondering if you could specifically talk more about what you're seeing on the industrial commercial side. You know, if home and life is sort of, you know, four to five quarters in, would you expect industrial and commercial to kind of have that same four to five quarter under pressure before you kind of get back to more normalized run rates?

Yeah, I understand the question. Quick and honest answer is we don't know for sure. some really interesting behavior out there in the marketplace. For us, we saw industrial enter at the start of a decline much later than consumer. For us, I think it was around Q2 where we really started seeing the signs of softening. What was remarkable for us is usually, and I think historically, typically, usually, it's much more measured and not as abrupt. But across thousands of customers, we really did see that segment just really slow down big time, really going from Q3 to Q4, and that was reflected in our guidance. And the reason I explain that is, yeah, so we're a few quarters in to the cycle correction as we see it, but it also hasn't been the typical one in the sense of how severe. You know, we're assuming it's going to continue for the next few quarters. And even with that being said, we still see this as our trough or bottom and able to drive sequential growth from here. But I wouldn't call the markets done. And, you know, we believe industrial still has some time to go. But with the caveat, we also haven't seen it go down as abruptly as we did in this current cycle.

Got it. No, that's helpful. And then just a question on the DISC inventory. You know, you guys said it came down to 79 days, obviously down a ton in terms of dollars, given a lower revenue level. Do you guys have a target that you're shooting for that DISC? I mean, I imagine as revenue starts to recover, if you just kind of hold DISC inventory flat, that the days in DISC is going to come down. still pretty nicely. So just any thoughts you can give us how we should be thinking about where you want to try to get this inventory. Thank you.

Yeah, understood. Yeah, I think we've said over the last few quarters, in normal times, whenever those happen, we'd be somewhere in the 60 to 70 day range as a target, not an absolute or hard target. But, you know, something in that range. But right now, it's obviously higher than that, but on a much lower revenue level. And as you pointed out, that can spike very quickly as things start to ramp back up. But you have to counterbalance it with the whole industry spooked by inventory right now, right? Everyone's trying to work down inventory, and that's what you see out there. So distributors are trying to work it down. Customers are trying to work it down. If we're honest about it, as an industry, we'll probably swing the pendulum a little too far. Maybe this will be one of the times that it doesn't happen, but it's possible that you'll see those inventory levels go down and then there'll be a bounce on the other side that's faster than anticipated because we take it too far as an industry. We're trying to watch that. We're trying to be responsible and do our best to manage it. The real focus for us in Problem Child is end customer inventory. which is going the right direction, which is encouraging, but not done.

Thank you. Thank you. One moment for our next question. And our next question comes from the line of Gary Mobley from Wells Fargo Securities. Your question, please.

Morning, guys. Thanks for taking my question. Matt, you briefly covered this in your prepared remarks, but I missed it, to be honest. I was hoping that you could share with us more metrics on design winds in retrospect, specifically the 2023, what the growth in lifetime value was for the design winds captured in the period, and as well whether or not there was a particular emphasis on any one-wire standard or module generation. I would presume the majority of it is on Series 2. Any color would be helpful.

yeah sure uh so uh yeah i think in the prepared remarks and and i think we said uh you know we we did deliver to our target and i'll mention in a second why that's remarkable uh and we saw uh that as a big deal because normal you know as we entered this year uh sorry as we entered last year 2023 we knew it would be a great you know mark environment but we didn't anticipate it would be as bad as it was but we set our design target in a different environment. And usually when you see the market drop like it did and as volatile as it has been, usually you see that convey and impact your design and performance. And the reasons are multiple. Like think about it in real terms right now. We have customers that are working through inventory, that are trying to work, you know, a lot of customers are doing R&D reductions, so they're impacting schedules and projects that way. All those things come into play But we're certainly not happy with our revenue performance in 2023, but the team was able to secure and deliver a design and performance that was on that original plan, which is outstanding. And the reason, to be very direct, is Series 2. We're still not in the Series 3 design phase yet. There's still a ways away. But in Series 2, as I said earlier, it's knocking it out of the park, and that's the engine that's driving design wins. The easy way to think about it is right now, that drives the growth of our funnel, opportunity funnel, that drives the design to grow, and that'll be the major driver of revenue growth. And that's why we're so excited about Series 3, because now that we have that position in the market, we can leverage that with software compatibility and portability. Because what our customers are starting to realize is investment in Series 2 is also an investment in Series 3, which is awesome. So we're starting to get that critical mass and position with our platform in the industry that will serve us well. In terms of the other questions, it was pretty broad, honestly, in terms of all our geos saw good progress. All our wireless technology saw good progress and all our focus in market segments saw good progress as well. You know, if you wanted to call out some, you know, big ones, it would be what you expected. Areas where we're just, you know, really seeing great progress and cleaning up, you know, those secular growth areas that we were talking about with Tori earlier, definitely having a big impact. And then, you know, take an area like we've been consistent in Bluetooth where, You know, we see strength in all of our wireless areas, but Bluetooth, we've really just seen that often grow from a design perspective, and we see ourselves continuing to take share there. So that's one that, you know, you could probably call out as a standout. And, you know, as we've been saying, I expect, you know, we just released the soft launch 9-1-7. For Wi-Fi, you're going to start seeing the same in Wi-Fi as we bring industry-leading capabilities there as well. So those are the drivers, Gary. Hopefully that gives you some perspective. But no one thing aside from definitely some strength in Bluetooth. But all the focus areas perform very well, and we hit our mark.

Thanks, Matt. Your main foundry partner is basically calling for a pretty good rebound year. with some pretty good growth, and I realize a lot of that rebound is leading edge lithographies, maybe not where you're at, but to put this in the form of a question, are you potentially going to see maybe higher founder quotes and as well related some expanding lead times? Could we possibly see lead times more than 13 weeks at some point in the year?

Sure. Don't understand the question, don't know for sure. I think that we've been very deliberate about our one strategic inventory bill internally, our die bank, to smooth this out. Going into the supply crisis, we were carrying a much lower level. So our intent by having that is to try to smooth the response and not have it be as abrupt and lumpy. And we have a great relationship with our all our foundry partners, including our largest. So, you know, we feel, you know, just to be very blunt, we were able to navigate the supply crisis with our relationships and partnerships. I definitely believe we'll be able to, you know, navigate the other side of this downturn that we're in. And I think we're much better prepared. We've learned a lot. We're carrying different die bank. We've learned a lot about forecasting, watching customer inventories, etc., So I think the confluence of all those will position us well, and I do believe we're, from a supply perspective, very well positioned to navigate it, all things considered.

Thank you. Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Giovanni Pacelli for any further remarks.

Thank you, Jonathan, and thank you all for joining us this morning. This concludes today's call.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.