Semtech Corporation

Greetings and welcome to the Semtech Corporation Q4 fiscal year 21 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sandy Harrison, Vice President of Investor Relations. Thank you, Sandy. You may begin.

Thank you, Paul, and welcome to CEMTAC's conference call to discuss the financial results for our fourth quarter and fiscal year 21. Speakers for today's call will be Mohan Mahaswaran, CEMTAC's President and Chief Executive Officer, and Matt Kachuku, our Chief Financial Officer. The press release announcing our unaudited results was issued after the market closed today and is available on our website at CEMTAC.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.

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For a more detailed discussion of these risks and uncertainties, please review the safe harbor statement included in today's press release and in the other risk factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only, and Temtech undertakes no obligation to update the information from this call should facts or circumstances change. During the call, we refer to non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principles. 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 detailed reconciliations of such non-GAAP measures to the most comparable GAAP measures are included in today's press release. With that, I will turn the call over to CEMTAC's Chief Financial Officer, Emeka Chukwu. Emeka?

Thank you, Sandy. Good afternoon, everyone. For Q4 fiscal 21, net sales was $164.7 million, which came in above the upper end of our guidance. This represented a 7% sequential increase and 19% growth over the same period a year ago. Despite the challenges presented earlier in the year by the pandemic, fiscal year 21 net sales increased 9% to $595.1 million, driven by the strength of the underlying circular themes driving our growth engines. In Q4, shipments into Asia represented 79% of net sales. North America represented 12%, and Europe represented 9%. Total direct sales represented approximately 13%, and sales to distribution represented approximately 87%. Our distribution business remains balanced. with 33% of the total POS coming from the high-end consumer end market, 37% coming from the infrastructure end market, and 30% from the industrial end market. Q4 bookings increased significantly, both on a sequential and year-over-year basis, and was a new quarterly as well as annual record for fiscal year 21, and resulted in a book-to-bill significantly above 1. Thor's bookings accounted for approximately 24 percent of shipments during the quarter. The bookings strength has continued into Q1. Q4 GAAP operating expense increased 12 percent sequentially due to the impact of the 14-week quarter, impact of the weaker U.S. dollar, higher new product expenses, and stock-based compensation expense. associated with an increase in our stock price. We expect our Q1 gap operating expense to decline from Q4 on the return to a 13-week quarter and lower stock-based compensation expense, slightly offset by the customary reset of expenses associated with the start of the new year, higher new product expenses, and the impact of the weaker U.S. dollar. Q4 GAAP order expenses was $2.7 million versus $1.6 million in Q3, primarily due to the impairment of some of our minority investments and higher foreign exchange losses due to the weaker U.S. dollar. In Q4, our GAAP tax rate was 5.5% as a result of a more favorable regional mix of income. In Q1, we expect our GAAP tax rate to range between 9% and 11%. Our GAAP tax rate forecast excludes consideration of any impact from discrete items, including excess tax benefit or deficiency from the exercise of stock options. Moving on to the non-GAAP results, which exclude the impact of share-based compensation, amortization of acquired intangibles, acquisition-related and other non-recurring charges. Q4 non-GAAP gross margin of 61.5% was in line with our expectations, and we expect Q1 non-GAAP gross margin to be generally flat with Q4 levels reflecting a high mix of consumer revenue. In fiscal year 22, we expect our gross margins to trend higher from a more favorable mix as we expect much of our revenue growth to come from our higher margin growth platforms. We expect that any increases due to the global supply

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Chain constraints should be mitigated by slower customer pricing reductions or, in some cases, price increases. As a reminder, our long-term gross margin target model is 58% to 63%. Q4 non-GAAP operating expense increased 9 percent to $62.3 million, driven by the impact of the 14th week, the negative impact of the weaker U.S. dollar, and higher new product expenses. In Q1, we expect non-GAAP operating expense to be approximately flat with Q4 levels, as the benefit of a normal 13-week quarter is offset by higher new product expenses. Increased payroll expenses are associated with the new year and the impact of a weaker U.S. dollar. For fiscal year 22, we expect our non-GAAP operating expenses to grow at about half the rate of our revenue growth. In fiscal year 21, non-GAAP operating margin was 23.4 percent, a 60 basis point increase from fiscal year 20. We expect to leverage revenue growth stable and expanding gross margins, and reasonable operating expense growth to drive the operating margin to our target model of 32% to 36%. In Q4, our non-GAAP tax rate decreased to 9.5% as a result of a favorable regional mix of income and discrete tax benefits. Beginning with our fiscal year 22 results, we will use a non-GAAP normalized tax rate for the full fiscal year. We believe this will provide better compatibility across our quarterly results by reducing the variability in non-GAAP tax rates that can occur throughout the year. We plan to update this tax rate annually at the beginning of each fiscal year. For fiscal year 22, our non-GAAP normalized tax rate is 13%. In fiscal year 21, cash flow from operations was approximately $119 million, or 20% of our net sales. Free cash flow was approximately $87 million, or 15% of our net sales. Our long-term target for free cash flow is 25% to 30% of net sales. We repurchased approximately $1.6 million or $71 million of our shares in fiscal 21, which represents 82% of our free cash flow. The board recently increased our stock repurchase authorization by $350 million, resulting in approximately $389 million of outstanding authorization. We expect to continue to use our cash to opportunistically repurchase our shares, make strategic investments, and pay down our debt. Accounts receivable in Q4 represented 36 days of sales, which is below our target range of 40 to 45 days. In Q4, net inventory increased 12% in absolute dollars from Q3. while days of inventory remained consistent at 118 days and remains above our target range of 90 to 100 days. In Q1, we expect net inventory to increase in absolute dollars and days to support higher sales and to address the tighter supply chain. In summary, we are very pleased with our solid financial performance in fiscal year 21. despite the many challenges from the pandemic. Our business fundamentals remain strong, and we are well positioned to benefit from the secular drivers in the high-growth markets of IoT, communications infrastructure, and mobile devices. We expect to leverage our stable and expanding gross margin and well-controlled operating expenses to grow our earnings much faster than revenue and continue to generate strong I will now hand the call over to Mohan.

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year 21 performance by end market and by product group, discuss our fiscal year 21 performance, and then provide our outlook for Q1 of fiscal year 22. In Q4 of fiscal year 21, net revenues increased 7% sequentially to $164.7 million. Higher demand across all three of our end markets drove better than seasonal Q4 results. We posted non-GAAP gross margin of 61.5 percent and non-GAAP earnings diluted share of 51 cents. In Q4 fiscal year 21, net revenues from the high-end consumer market increased 10 percent sequentially and 32 percent over the prior year and represented 30 percent of total revenues. Approximately 19 percent of high-end consumer net revenues was attributable to mobile devices and approximately 11% was attributable to other consumer systems. Net revenue from the industrial end market increased 9% sequentially and 25% over the prior year and represented 33% of total net revenues. Net revenue from the infrastructure end market increased 3% sequentially and 7% over the prior year and represented 37% of total revenues. I will now discuss the performance of each of our product groups. In Q4 of fiscal year 21, our signal integrity product group grew 1% sequentially and represented 38% of total revenues. Stronger demand from our PON and wireless space station business contributed to the growth. In Q4, demand from the data center market remained soft. as customers continue to consume excess inventory following the strong first half. We believe inventory levels have reduced, and we are expecting data center revenues to grow in Q1. Customer activity around our tri-edge PAM4 CDRs remains high, and we now have multiple design wins that are in various stages of qualification in 100 gig, 200 gig, and 400 gig PAM4 optical modules. We expect our tri-edge revenues to increase nicely in FY22 as customers move to full production. Our fiber-edge PMD platform, which complements our clear-edge and tri-edge CDR platforms, as well as DSPs, continues to gain solid momentum in 400 gig and 800 gig PAM for optical systems. We are confident that tri-edge's lower power, lower cost, and lower latency, together with fiber-edge's higher performance, will enable us to continue to grow our hyperscale data center business and achieve another record in fiscal year 22. In Q4 of FY21, our pond business grew nicely, driven by record 10 gig pond revenues, as the ongoing demand for higher bandwidth connectivity is resulting in an increase in pond demand globally. While the China market is expected to lead pond deployment growth in FY22, Other global service providers, including in the US, India, and Europe, have also announced deployment plans that we believe bodes well for our 2.5 gig and 10 gig PON platforms. Semtech remains a leading supplier to the global PON market, providing the most comprehensive PON PMD portfolio. We expect our PON business to continue to grow and achieve another record performance in FY22. In Q4 of FY21, revenue from our wireless space station business increased nicely as our ClearEdge platform continued to establish a leadership position in 5G front-haul optical modules. We also recently announced the availability of our new Tri-Edge 50-gig PAM-4 platform targeted at 5G front-haul optical modules. We believe our established position in 4G along with the 5G momentum from our new ClearEdge and TriEdge platforms, targeted at front-haul and mid-haul optical module applications, should enable our wireless base station business to deliver another record performance in FY22. The underlying secular demand driven by the quest for higher bandwidth globally in data centers, horn, and wireless broadband networks is expected to drive solid growth from our signal integrity product group in Q1 and in fiscal year 22. Moving on to our protection product group. In Q4 of fiscal year 21, net revenues from our protection product group increased 15% sequentially and 26% over the same period last year and represented 29% of total revenues. In Q4, our protection consumer business experienced better than seasonal demand, led by a recovery in smartphones following the weak start to the year due to COVID. Stronger demand from our Asian smartphone customers, along with record revenue from our North American smartphone customers, contributed to the Q4 strength.

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In Q4, demand from the broad-based industrial markets was also stronger as our protection product group continues to diversify into a broader range of industrial and communications markets. including the automotive and IoT markets. Semtech is the global leader in high-performance protection solutions, and as system designers use more advanced process geometries, the need for more robust protection to protect these sensitive devices will continue to increase. In addition, many of today's newer industrial systems and mobile platforms are using higher-speed interfaces and advanced charging solutions where high-performance protection is required. We believe these secular trends will drive increasing adoption of our protection platforms used in mobile systems, displays, accessories, and increasingly across broad-based industrial automotive and communications platforms. In Q1 of fiscal year 22, we expect our protection revenues to be approximately flat. Turning to our wireless and sensing product group. In Q4 of fiscal year 21, revenues from our wireless and sensing product group increased 6% sequentially and 32% over the prior year to achieve a new quarterly record and represented 33% of total revenues. In Q4, our LoRa-enabled platforms also delivered a new quarterly record, and we announced several key initiatives that demonstrate the increasing acceptance of LoRa in low-power IoT applications. These include the following. AWS announced the integration of the LoRaWAN protocol with AWS's IoT Core, a fully managed service that enables IoT developers to easily connect low-power LoRa-based sensors to the AWS cloud. Swarm Technologies, a global satellite communications company, integrated LoRa into their platform that enables two-way communications to and from its LEO satellites. LoRa is well-suited for these long-distance, low-power applications, enabling satellite-based use cases for logistics, agriculture, connected cars, and energy. Y-Track, a developer of real-time location and telemetry capabilities, integrated LoRa into its global track and trace platform to enable customers to guarantee delivery times and maintain appropriate temperature of fresh food inside refrigeration units throughout the entire cold chain. And Ripple Networks, a provider of IP networking of low-powered devices, announced the use of LoRa in its IP mesh 3D location tracking software to help secure naval ports where 20-kilometer sensor connectivity range and 10-year battery life is required. These are just a few examples of the emerging use cases where LoRa's low power, long distance, and flexibility demonstrate the value of LoRa technology in enabling a smarter, more connected, and sustainable planet. In Q4 of fiscal year 21, we also experienced record quarterly demand for our proximity sensing platforms, led by strength from our Asian smartphone customers. Global RF regulations are increasing the proximity sensing requirements on smartphone manufacturers that wish to compete on a global stage. We expect our proximity sensing business to benefit from these enhanced requirements, and recent design and activity in new 5G smartphones and wearable devices where there are an increasing number of high-performance radios being used, indicate that our proximity sensing business will continue to grow nicely. For Q1 of fiscal year 22, we expect net revenues from our wireless and sensing product group to increase and deliver another record quarter, led by growth from our LoRa business. Moving on to new products and design wins. In Q4 of fiscal year 21, we released 18 new products, and achieved 3,080 new design wins. Now let me comment briefly on our fiscal year 21 performance. In fiscal year 21, net revenues increased 9% to $595.1 million, driven by strength from all of our product groups. In FY21, we had 56 new product releases and achieved a new design win record of 11,271 new design wins. In FY21, our signal integrity product group grew 15% over the prior year as infrastructure spending increased. Our SIP product group achieved record bookings and had record 100 gig revenues, record 5G base station revenues, and record 10 gig PON revenues. We expect these businesses, along with our PAM4 and ProAEV businesses, to all achieve records in FY22 and contribute to strong growth in our signal integrity product group in fiscal year 22. In FY21, our protection product group grew 3% over the prior year as the high-end consumer market strengthened and our diversification strategy began to yield results. We expect our protection business to achieve double-digit growth in FY22 as our diversification efforts continue to bear fruit in both the consumer market and the broader industrial automotive and communications markets. In FY21, our wireless and sensing product group grew 6% over the prior year. Despite the slow start to the year due to COVID, our LoRa-enabled revenue grew 19% to approximately $88 million in FY21. In FY21, Our LoRa business met or exceeded most of the metrics we targeted at the beginning of the year. These metrics included the number of countries with public LoRa networks in FY21, grew to 100 countries from 91 at the end of FY20. As LoRa is well established in most regions of the world, we will no longer report on this specific metric. The number of public or private LoRa network operators grew to 150 at the end of FY21 from 133 in FY20 and we expect 165 LoRa network operators by the end of FY22. The number of LoRa gateways deployed more than doubled from 642,000 gateways in FY20 to over 1.3 million gateways at the end of FY21. and we expect the number of LoRa gateways deployed to increase to over 2 million by the end of FY22. The cumulative number of LoRa end nodes deployed increased to 178 million at the end of FY21, from 135 million at the end of FY20. We expect this number to exceed 235 million cumulative end nodes by the end of FY22. The lower opportunity pipeline, which includes both opportunities and leads, ended FY21 at approximately $700 million. 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 is geographically well-balanced, with use cases primarily in smart utilities, smart logistics and asset tracking, smart home, and smart cities. At the end of FY22, we are anticipating our total opportunity pipeline should exceed $850 million. In FY21, our LoRa business achieved several major accomplishments. These include our partnership with Amazon on several projects, including the Amazon Sidewalk Network, designed for smart home, community, and consumer applications, providing low power, broad coverage for indoor and neighborhood area IoT devices. We expect revenues from our Amazon activities to start to ramp this fiscal year. Our LoRa Global platform that uses a 2.4 gigahertz version of LoRa has been adopted in a number of global use cases that require higher bandwidth or connectivity in areas where LoRaWAN networks may not be present. And our LoRa Edge platform enabled our first device to cloud platform and associated cloud services. In FY21, we launched our first LoRa cloud services. offering device provisioning, device management, and geolocation services. We have closed on our first cloud services agreements and expect initial cloud services revenues this fiscal year. We anticipate signing up over 20 cloud services agreements with customers by the end of fiscal year 22 as we fine-tune our capability and service offering. This is a new metric that we will report on quarterly. These accomplishments demonstrate the evolving maturity and acceptance of LoRa. With the growing 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 in what we expect to be a multi-billion unit industry in the next five years. For FY22, we are expecting positive momentum from our LoRa business. and anticipate a 40% CAGR for our law-enabled business over the next five years. Now let me discuss our outlook for the first quarter of fiscal year 22. Following a record bookings Q4 and a record bookings year, we entered Q1 with record backlog. We are currently estimating Q1 net revenues to be between $164 million and $172 million. To attain the midpoint of our guidance range, or approximately $168 million, we needed net terms orders of approximately 16% at the beginning of Q1. We expect our Q1 non-GAAP earnings to be between 49 and 55 cents per diluted share. I will now hand the call back to the operator, and Sandy and Mecca and I will be happy to answer any questions. Operator?

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that participants limit themselves to one question and one follow-up. One moment please while we poll for questions. Thank you. Our first question comes from Tori Svanberg with Stifel. Please proceed with your question.

Yes, thank you and congratulations on the record results. Mohan, you talked about targeting 20 service agreements by the end of fiscal 22 for LoRa. Could you elaborate a little bit more on the size of those? I mean, are these kind of like million-dollar agreements? Just trying to understand, you know, how quickly the service's revenue can ramp, and I know eventually, obviously, your target is about 100 million, but just wanted to understand for fiscal 22, how much it's ramping.

Yeah, the thinking, Tori, is that the agreements will really be focused on connecting devices, and so, you know, obviously, if there's a very high volume of devices and usage of those devices accessing the cloud services, then the revenues will go up. So, it depends on use case. It depends on number of devices so that each one is kind of individual on its own. But that's the way the thinking is. So the revenues will be generated by the number of times the algorithms are accessed and the number of devices, et cetera, things like that. So obviously, FY22, for us, this is almost a trial year to see, make sure we fine tune the system. I mentioned the three areas we're starting off with, device, Provisioning, which is about connectivity to the network and the cloud. Device management, which is about monitoring the device itself and making sure the battery, telling you what the level of the battery is and things like that. And then geolocation, which is about locating the device and tracing it and things like that. So we have to demonstrate the value, but as we demonstrate the value, I think as customers

recognize the value of each of those aspects of the service then they'll be quite happy to pay for pay for it and that's the thinking and we'll see how it plays out yeah thank you for that and that's my follow-up so i'm pretty confident that gross margin could expand this year obviously driven by mix does that mean that your visibility in your infrastructure markets including 5g and data center You know, it's pretty decent right now because I know those markets have been a bit softer as of late, but it sounds like you have that pretty good visibility there now.

Yeah, sorry. So, yeah, I think we feel very good about what is happening in the optical infrastructure space. You know, we continue to see a whole lot of design wins with some of our new product platforms. The expectation on our side is that, you know, we have a lot of good things going on on the gross margin side. A lot of the new products are driving top line revenue. But speaking on the gross margin, you know, the one thing that is still out there that we're trying to really assess is what is the impact of cost increases within the supply chain. Although our feeling is that any negative impact we get from that should be mitigated by not giving as much pricing reduction. So actually, in some cases, going back and asking for higher prices from our customers. So to your point, definitely, you know, like I said before, I think it was last quarter, you know, I'm still anticipating seeing gross margin expansion anywhere from 50 to 100 basis points. And, you know, we're still pretty good about that based on the visibility that we have at this time.

Very good. Congrats again.

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Thank you. Our next question comes from Tristan Guerra with Baird. Please proceed with your question.

Hi, good afternoon. Just following up on the same topic, any concerns about availability of any component or, you know, in terms of wafers for this year? And also have you implemented any type of non-cancellable order policies with your customers?

So, Tristan, I think on the first part of the question, we have, you know, you can see probably since the second half of last year, we've been building more internal inventory. And one of the reasons for that is the increasing lead times and supply chain. So, we don't anticipate any major issues, at least in the first half of the year. We think we're going to be good for most of the year. Obviously, it's a daily thing. You know, we're looking at it daily and it depends on demand how we have a couple of constraints You know around the business in terms of supply, but fairly small modest in nature I would say, you know less than a few million dollars. So I think here and there and then we just wait and see what the upside where the upside is and as I said, we think we have it covered with our Demand management and inventory management and and the way we're managing the business. So I think we're okay and then As Emeka pointed out, you know, obviously we have some supply constraints and in those cases we are going out and looking at whether we can, when we get increases in the supply side, on the cost side, we are going out and deliberately looking specifically at where we can also offset that with raising prices. In some cases, I think it's also being more disciplined about how we work with our partners. In general, at the moment, we don't have to do anything. I think first half is going to be fine. I think it's really going to be a question of how the second half plays out. And if the demand continues to be extremely strong and improves and the markets continue to improve, then we may have to do some of those things. But I think at this point, we're okay.

Great. Thank you.

Thank you. Our next question comes from Harsh Kumar with Piper Sandler. Please proceed with your question.

Yeah. Hey, guys. First of all, congratulations on some very good numbers and some very good guidance despite all the challenges in the market. So we do appreciate that as investors. I wanted to ask you, Mohan, of all the things that you see positive that are going on with your company, what are some of the things that you are the most excited about or you feel that will grow the fastest for you? And then I have a follow up.

Well, this year, you know, I think is, is going to be the year, uh, where Laura is really moves into the mainstream. I've said that before there will be catalysts. And I think we are starting to see that, you know, obviously the Amazon sidewalk announcement was, was exciting. The Amazon, um, AWS IOT core announcement was exciting. And the cloud services, you know, the first time we've really gone out there with cloud services as a capability, and we're going to test them and check that out and see, But we're very excited about that. Obviously, we'll see how the results play out over the next few years, but that's obviously exciting. All of our businesses in the infrastructure side on the signal integrity product side are doing extremely well. Obviously, it's largely to do with the world moving to more higher bandwidth across different segments of the market. But because we play in all areas, data center, base stations and on the access side with PON, we can see that there's demand in all areas and one feeds the other. If you have core bandwidth increase, you need base station bandwidth increase. If you have base station bandwidth increase, you need access bandwidth increase. And so we're seeing that definitely become playing out. And I think the other thing that's exciting about that is that it's becoming more global. You know, for a large part of our, you know, last five years, if you look at it, I mean, a lot of the growth has come from China. And, you know, what we're seeing now is a lot more, you know, growth in other regions. Very excited by tri-edge. Got great momentum with that. And so we'll see how that plays out. But we're very excited by the, you know, you know, the work that's going on with customers and on the feedback. And, you know, we started to get very good orders in that area. So that's very exciting. And then I think the, you know, protection business is, you know, we made the decision to diversify a few years ago. That's starting to play out nicely for us. And I think that could be extremely positive for us as well. So, yeah, lots of areas. Harsh, it's tough for me to pick out one. But I think if you have to pick out one, it would still be Laura.

Okay, awesome. Thank you, Mohan. And then thanks for mentioning triage. I was going to ask about that. So I'll ask you now about what kind of interest are you seeing regarding your cloud services from customers as you talk to the folks out there that are going to buy these services? Are they are they excited? Or is it just more of a push or show me the concept kind of thing at this point?

It's a little bit of both. I think the initial, you know, show me, show me, but once they see what we have, I think there's a lot of excitement. I think it's a very unique platform, right? I mean, we're the only real guy out there providing device-to-cloud services that offer, you know, this type of capability. We can offer, you know, very good security in terms of device provisioning, joining network, obviously, because we're We are, you know, in both the end devices and in the gateways and obviously have worked with the cloud guys. So on the device management side, you know, that's also a very unique capability of being able to update the device itself over the year in software. And then geolocation, obviously another unique capability for us with what we have with Wi-Fi sniffing. And GPS sniffing essentially being able to allow the device to be tracked indoors and outdoors is a very nice feature as well. So lots of nice things. We have to, you know, it's embryonic. I mean, it's very new. But the opportunity is clearly there. The market is huge. And now I think if we execute, we should do very well. Thank you, Moran.

Thank you. Our next question comes from Gary Mobley with Wells Fargo Securities. Please proceed with your question.

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Hey, guys. Let me extend my congratulations on a strong finish to the year. We have seen and heard out there in the marketplace of manufacturing companies constraints for automobiles as there's a shortage of automotive semiconductors. We heard just yesterday Samsung talking about smartphone supply chain constraints. And so my question to you is, to what extent have you factored into your guidance any supply chain constraints unrelated to your specific products?

unrelated to our specific products is tricky because we don't really know until we hear about it right Gary but I would say you know you can tell from our terms number required we are you know obviously we're guiding to a number we feel comfortable with based on you know how much terms we need the question really is whether our customers change their demand outlook and then reduce the need for the devices. I doubt that's going to happen. If anything, I think it will go the other way, which is as lead times continue to extend out, they'll want more material and need more material if they're going to continue to be successful. And so I don't think it changes much from our perspective. Obviously, you know, there could be a surprise if some customers come back and cancel phones and things like that. But likelihood is it's just a uh a temporary blip and the next quarter will probably be even stronger if they um if they uh you know choose to uh to grow their businesses right okay appreciate that mohan so my follow-up i had a couple of quick uh housekeeping questions could you share with us perhaps how much the extra week in the quarter impacted the sales

And as well, could you give us an update on what your distribution, sorry, your distributor inventory stand in terms of days or weeks?

So, Gary, with regards to the impact of the 14-week on sales, you know, it's really kind of hard for us to estimate that, right? So, I think what most people have typically done is just look at it on a linear basis, right? And with regards to distribution, we don't announce the days publicly, but I can tell you that we're very pleased with where the distribution inventory is, and it's probably a little bit on the lower side if I were to add some color to that.

All right. Thanks, Emeka. Thanks, everybody.

Thank you. Our next question comes from Quinn Bolton with Needham. Please proceed with your question.

Hey guys, I'll offer my congratulations as well. And I apologize that my call dropped during the Q&A, so I apologize if somebody else asked a question. But Mohan, you talked about a strong outlook for the Laura business in fiscal 22, really starting to hit the mainstream and a 40% longer term five-year CAGR. Wondering if there's any reason to think that the growth in fiscal 22 for Laura would be, you know, wildly off that 40% year on year. rate implied by the longer-term CAGR you're looking at?

Nothing that I can think of, Quinn, other than macro events. I mean, this last year, pandemic, something like that occurring, just all bets are off on what type of things are going on. But the pipeline is good. The activity is good. A number of new big initiatives, like the Amazon initiative I mentioned, We've got more in the pipeline on those that will be announced soon. I think cloud services, as I mentioned, we just got great momentum. And one of the things about LoRa and IoT, and specifically the LPWAN market, it's a market that's being created. And a lot of the use cases are around climate, pollution, climate initiatives, pollution initiatives, green initiatives. energy savings initiatives, and there's just great momentum. So my own sense is that if anything, the momentum will be better, but at this point in time, we're just monitoring it case by case. We look at all the use cases, we look at all the proof of concepts that are in place and how we can move those to revenue. But, yeah, I think there's a lot of initiatives. Obviously, the Amazon Sidewalk Initiative as an example of that, you know, once it starts to really get out there, and I think it's more the second half of this fiscal year, but as it starts to ramp, I mean, that could really ramp very, very nicely, very quickly, or it may not, right? So we'll have to wait and see, but we're confident about it.

And just a quick clarification, Mohan, on the Amazon side, when you're talking about the second half of 21 ramp, is that more on the gateways or is that on the end node side?

Well, what we know, and obviously I can't talk about it in too much detail, but what we do know is that work is going on on both ends, both devices and gateways. But from a use case standpoint, you really kind of need the gateways out there first, and then that will drive more end nodes and more sensors. And once the gateways are in place, of course, you can then add infinite amount of sensors. And so I think once they're in place and you have an installed base of gateways out there, I think the next five to 10 years will be very interesting to see how many sensors are actually connected.

Great. The second question I have is just on the protection business. I think you said that outlook for growth in fiscal 22 was 10% or better. I might have missed it, but did you give an outlook for signal integrity? It sounds like base station, PON, data center, all going to be pretty good growth here. So just wondering if you had a, you know, kind of a fiscal year, fiscal year 22 target for the signal integrity business.

I expected to have another record year, Quinn, and grow double digits again. So very strong, all areas of the business. I expect data center, base station, and PON to all do very well. And then, as I mentioned, the PAM-4, So the triage is doing very well, so I expect that to grow very nicely in FY22. And then some of the segments that struggled in FY21, particularly video, broadcast, the ProAV stuff, really struggled in FY21 through COVID. I think some of that's gonna come back quite nicely in FY22, we'll see. It may be second half loaded again as live events come back on and as more people start to get out there sports bars and things like that, I do expect a ramp-up of ProAV as well.

I'll be rooting for the video broadcast business then. Thanks, Paul.

Thank you. Thank you. Our next question comes from Carl Ackerman with Cowan. Please proceed with your question.

Yep. Good afternoon, gentlemen. Appreciate you letting me ask a question, too, if I may. First, You know, some 5G networking supply chain players have noted a pause in China infrastructure projects until tenders are granted. You know, given your unique position within the supply chain, I guess, what level of activity are you seeing in China infrastructure spending today? And I guess also in the context of 10-gig pond order rates for the April quarter?

Well, we see strength in both areas, 10-gig PON and 5G base stations. As you know, COM is sometimes lumpy, and one quarter are here. Sometimes you wait, but in general, everything's up and to the right, and that's not a surprise. Infrastructure across the globe is increasing. 5G base stations are increasing. 4G also is increasing. PON is doing nicely, and as I mentioned, 10-gig PON Specifically because of the bandwidth Expansion needs is increasing quite nicely The other thing is it's not just China and I think that's an important takeaway is that you know We are starting to see a lot more activity in both 5g and pawn in North America and Europe and other regions of the world So which is which is also quite good very positive and remember with both 5g and pawn we have more content than we had with 4g so With 5G, obviously, we have now CDRs as well as PMD function. Also, with 5G, there's typically more frontal modules. And then you have expansion on the geographical side. And then on the PON side, not only do we have 2.5 gig and 10 gig PON, but in 10 gig PON, we also have the OLT side, so ONU and OLT side, so kind of the CP and central office side, if you like, can That's also giving us more content. So in both of these segments of the market, we're doing extremely well. I would say that both markets are also doing quite well, though.

Got it. I appreciate that, Mohan. For my follow-up, you know, you spoke about how protection business can grow double digits this year. How does automotive play into that outlook, and how should we think about the incremental revenues here and, I guess, the margin profile here? For those as you look to expand it into this area.

Thank you So protection is doing very well in automotive. It does take longer though I you know This is all fairly new design wins in automotive and those take some time so that they kind of have more of a Industrial growth rate, I think but yeah, I do expect to do well and and anything in any protection that goes in motive or into IOT or or into communications infrastructure, or into broader industrial, will be at either our corporate average or much higher, actually. So, in general, it's the consumer protection business that's the lower margin for us. And so, I think, as Emeka pointed out, if we get the right mix in both our different businesses, but across the company, that should be accretive to gross margins.

Thank you. Our next question comes from Rick Schaefer with Oppenheimer. Please proceed with your question.

Hi, this is Andy Hummel on for Rick. Thanks for taking my question. The first one, just with LoRa and some of the Amazon wins that you announced, more specifically on the AWS IoT side, but can you just talk a little bit more about the opportunity with that platform? What are some of the factors that Amazon has that helps you accelerate LoRa adoption? And then more broadly, if you can just remind us what your revenue opportunity is with the Amazon partnership.

Yeah, so AWS IoT Core is really an important initiative. It's taken several years, I think, to come up with and develop and create, but essentially it creates a plug-and-play experience for enterprise solution providers that enables them essentially to connect their IoT sensors directly to the Amazon cloud. And why that's important is essentially as a time to market thing and also a competence thing because AWS already has, you know, software developed for applications, has different unique kind of vertical application software that can be applied to different segments. And so not only the connectivity enablement, which is easier and faster, but then also the ability to provide a kind of end-to-end solution quicker is also important. So I would say that's the key thing. And so for enterprise, it's really an enterprise. play, different than Sidewalk, which is more of a kind of a smart home consumer play. That gateway connectivity directly to the cloud is really significant for large enterprises, and so we do expect that to be part of our $100 million in five years with Amazon is tied to Sidewalk, and some of it is tied to AWS IoT Core, but I think that's kind of the goal.

Okay, great. Thanks. And then As a follow-up, just on the 10-gig pond market, do you guys have a sense for where customers are at in the upgrade cycle? Is there a way to quantify, I guess, what percentage of customers that might end up upgrading at some point have already upgraded to 10-gig?

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Well, about 50% of our revenues that are coming in quarterly now are for 10 gig. So that's a very rapid increase. I wouldn't have expected that. We knew 10 gig. Was going to ramp up but that tells me that the markets moving to the higher bandwidth pond quite quickly And we're expecting that to continue to grow that way. So so yeah, it's moving fast I mean if you think about it 10 gig is a natural handoff for 5g. It's also a natural Connectivity point for HDTV, you know things like that. So it's really a nice Kind of data point 10 gig typically is really a good handoff point for high-speed data and so I think 10 gig pawn has an option to do very well and and we and we look at it if you've got a Greenfield site, it's actually in China But I think it's also applies to other regions of the world Where you don't have optical cable, but you're going to lay out optical cable. You'd go with the higher bandwidth Optical connectivity, right? So that's why you know, you'll go with 10 gig pawn and or above even, you know, we have customers who are looking at higher bandwidths as well. So, which again will help Semtech.

Okay, great. Thanks. Appreciate it. And congrats on the quarter.

Thank you. Our next question comes from Craig Ellis with B. Reilly Securities. Please proceed with your question.

Yeah, thanks for taking the question and congratulations on the results. Mohan, I wanted to start with Bora, but before I ask the question, thanks for keeping the dashboard fresh and the metrics relevant to the things that are evolving in the business. The question on Laura, though, is if we look back a year ago, I think it was a priority to really increase the mix of design win and engagement activity in U.S. and Europe, and the team clearly did that and did that well. As you look ahead to 2022, are there any areas of geographic emphasis as you look at pursuing some of the metrics that you talked about in this year's SLORA dashboard?

I think we still have to execute on that, Craig. I would say it's moved now, and so a lot of the opportunities are outside China. I don't think that we necessarily are changing our strategy in China, momentum in China is still very good. It's more a question of let's make sure we have momentum in other regions of the world. And clearly North America now with Amazon and some of the things that are going on in the enterprise space in North America is extremely good and in Europe as well. So I think it's more of the same. We just want to keep doing that and executing on that. And, you know, now, as I mentioned, really LoRa is quite well adopted around the world globally. I mean, it's really acknowledged as a great technology for LPWAN. So I think our focus now is on, you know, executing on the proof of concepts and making sure, you know, there's end-to-end solutions, there's enough sensors, there's enough gateways, there's high-quality software out there, there's cloud connectivity. those type of things, and really focusing in now on the use cases, make sure that the customers themselves who are implementing those use cases are not having any challenges with the use of LoRa from an end-to-end solution standpoint. And therein lies the opportunity with LoRa Cloud, I think, and with some of the things we're doing with Amazon on the AWS IoT core, for example.

Got it. And then the follow-up, Emeka, is for you. In your prepared remarks, you mentioned rising input costs and the potential to make some pricing moves. And I just want to dig into a little bit further on what was possible. For example, I would expect in some parts of the business, it may not possible to raise prices due to, you know, your relationship with existing tier one customers. But in other parts of the business, it may be more feasible. So can you just provide some further color on what the company Might be able to do, and when, in fact, the company might be able to make some moves if it chose to act in that direction. Thank you.

Thanks, Craig, I think, you know, we already seen, like, Mohan did mention. We already seen some instances where we're getting indications of price increases from the supply chain and we're assessing that it's not really it's pretty much going to be across the board where we continue to. look at where, you know, which product lines, which areas are we seeing the impact of these increases. And then we'll have to figure out whether the strategy is just going to be, you know, as you're coming to every year, you plan for a certain amount of ASP reductions. Maybe, you know, the answer is going to be, okay, we're not going to give those planned ASP reductions. Or in some cases, if the increases on the supply chain is pretty significant, then we'll have to expect our customers to help us share some of those bodies. But it's very, I'm not sure that I can come out now and tell you exactly where we are seeing things, but our sense though is that we should be able to find opportunities to offset the impact of cost increases that we get.

One thing to remember, Craig, as I mentioned earlier, is that we have done a really fantastic job, in my view, of building more inventory in anticipation of some of these issues. And so I think at least for the first half, I think we feel pretty good about, you know, where we are from the supply standpoint. The question really is in the second half, if demand increases and we need to go to our suppliers and get more material, you know, then it's going to come at a higher price, right? And for those, we may have to, you know, go to our customers and request higher pricing.

Well, certainly you wouldn't be the first doing so there. So, guys, thanks very much and good luck.

Thank you. Our next question comes from Chris Roland with Susquehanna. Please proceed with your question.

Hey, guys. This one will be for Mohan. So I recently ordered a helium hotspot. So I am backordered on that. But, you know, if you look at the token value market cap implied by the network, we're in the hundreds of millions now, which would imply this would be a real thing. So, I was wondering, Rohan, if you could talk about this. Do you think this could be a real thing? Is this something that maybe you thought Comcast was going to be? Can you talk about kind of where we are now and how you're viewing this whole network?

Yeah, that's a really interesting question, Chris. I would say that that was our vision and dream with Comcast, and for whatever reason, they decided not to. to go down and continue to execute on that. They're still involved, but not with the ambition that we thought they initially had. We do think that that's the same kind of concept which Amazon Sidewalk has and others that are in the pipeline. Helium's approach is very interesting and very unique and very creative, which obviously fits well with Laura all the things that are going on. So yeah, I think it could work. You know, to some extent with some of these networking approaches, it's the beauty of LoRa, which is it's very flexible, very, you know, could have very low cost, very secure networks that connect together. And it just changes the world of networking to some extent. And I think that's the ambition, right? So take it away from the big guys,

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And give it to the small guys and see what happens. And so we'll see, you know, it's early. And I think with Helium obviously being a startup, you know, they have to execute. But we see this in several countries in the world going on. It's not just in the U.S. and As I say, I think definitely the momentum is there. We'll see how it plays out. The use cases are the key in my view. As more and more use cases become available and make the network itself very valuable, then I think it could work for sure.

Understood. My second question is around China, both on the handset side and the optical side. I think you said China handset was good. Do you have any viewpoint on China inventories and how much you were helped by inventories that may have been built as Huawei has been struggling here? The other guys have been said to have been building inventory. And then secondly, on the 5G infra side, I think you mentioned some optical strength. Is that where it came from? Was it China optical on 5G?

Well, I'll take that one first. The 5G strength today is mostly China, but I think we are starting to see new opportunities now emerge from other regions of the world, which is, as I said, very encouraging. And it's well understood, I think, around the world that some of the North American and European companies, Nokia, Samsung, Ericsson, Cisco, are all engaged in trying to build 5G technology. systems and equipment. And so we see definitely a good momentum there more globally. And then on the smartphone question and mobile question, for sure China has ramped up and specifically non-Huawei smartphone manufacturers have ramped up their demand and are looking to get more material. We are seeing that strength. I would say it's Also, North America, the strength is there. Korea has been slightly not so strong. I do think that that may come back in Q1 and beyond, but certainly for Q4, China was strong and probably will be for the first half of this year. I don't know how much of that is supply chain driven. I don't think it is. I think we start to see that well in advance. I think it's more in anticipation of maybe winning some of Huawei's business. But at the end of the day, we look across all of our customers and are looking carefully at what is demand and what's being consumed and how much material is out there in the channel and paying a lot of attention to that. Thanks, guys.

Thank you. Our next question comes from Cody Acree with Loop Capital. Please proceed with your question.

Yeah, thank you guys for taking my question. If we can go back maybe toward the beginning, I'm just trying to get a better sense of the velocity of your bookings level as we push here through the first part of the year, just on a linearity basis. And then what is that? Is there a correlation between that bookings uptick and the expansion or the expanded lead times?

I would say that the demand came first, Cody. I mean, we definitely started to see bookings, very strong bookings in October, November, December. I mean, very, very strong. Chinese New Year softened a little bit, but then bookings have been very strong since then. Lead times have been gradually increasing. Supply lead times have been gradually increasing. So customers obviously want to give you more visibility as they get concerned about supply constraints. But I think it's a healthy position for someone like us. We've built inventory. We have enough material to support the customers. It's just a question now of making sure that the materials we ship out are being consumed effectively. And I think that's what we're, as I said, we're keeping a close eye on. But yeah, that's kind of how the way we think about it.

Mohan, I guess given your position, how much visibility do you have? Do you feel comfortable with having on the possibility of double ordering or just inventory restocking efforts? We all know how this ends, but what visibility do you have? And then maybe why the 16% turns guidance visibility is so high, why not a higher?

Guidance if you're that much booked for the quarter Well, we so we do have very good visibility actually and that's that's the good thing and and you know as I said That's not a surprise the terms number and and the reason for you know The low percentage terms is mostly because of that consumption questions as I'm on as I answered is that you know while? Customers are asking for more You know we want to be cautious about making sure that there's no excess channel inventory, and so we pay a lot of attention to that. As Emeka said, it's kind of the low end, and we'd like to keep it there. And so we are making sure that whatever we ship out is being consumed effectively, and it's not double-ordered and things like that. So we're taking specific steps on that front, and that's the reason why our terms and numbers is what it is. Great. Thank you, guys.

Thank you. Our next question comes from Tori Swanberg with Stifel. Please proceed with your question.

Yes, thank you. I just had a few follow-up housekeeping ones. Mohan, you talked about the LoRa pipeline being $700 million. I believe in the past you've talked about the funnel and leads to the funnel. So is that $700 million now basically just adding those two up?

Yes, opportunities and leads, Tori. I would say that this last year, in FY21, normally a lot of the raw leads come from shows, conferences, events, and things like that. And of course, we went in Q1 into a period where nothing was happening. So I think that's going to change this next fiscal year when things start to get back to normal in terms of you know, some conferences being open, you know, shows starting to open up a little bit and people traveling a little bit more, we'll start to see those leads expand. But, yeah, to answer your question, it's a combination of both opportunities that are in the pipeline that are, you know, running proof of concepts and leads.

Got it, got it. And then I just had a question on sort of the math of the, you know, the number of the gateways and the end nodes versus your revenue. So, you know, I think End nodes grew about 30 percent. Gateways, I think, doubled year-over-year. Your revenues grew 20 percent. So how should I just think about the math there?

And of course, I'm not looking at perfect times here, but, you know, any... So the way to think about it, Tori, remember, gateways is installation, is creation of a network, right? So they're creating the networks first. They put it in gateways, you know, whether that's a private network or a public network. The end nodes are tied to actual sensors being connected to those gateways. Now remember, the end nodes, the timing of an end node, when we ship a device out, the device typically will go to a distributor, the distributor will then ship it to a customer, the customer will then put that, for example, that device, we just tell the radio component, they will put it into a system, build the whole sensor node, and then it gets connected to the gateway. So there is different timing components here, but the reason why You know, I share these metrics. Obviously, the gateways are important because it tells you about the capacity that's out there to support LoRa. So, you know, with the current capacity of 1.3 million gateways, that can support about 5 billion sensors there. So there's plenty of availability of networks to support sensors. And then the cumulative end nodes is important because it tells you exactly how many nodes are now connected to the gateways. In terms of our revenue, it's when we ship devices to our customers, right? Right. No, that's very helpful. Thank you so much.

Thank you. There are no further questions at this time. I would like to turn the call back over to Mohan for any closing comments.

Okay. In closing, we were pleased with our strong Q4 and fiscal year 21 results. Despite the impact of the pandemic, Our multi-sourcing initiatives, our investments in IT operations and sales infrastructure limited the impact of COVID on our business operations. We also benefited from the strengthening of several secular themes driving our key growth engines targeted at the data center, Internet of Things, and mobile device segments. We remain committed to considering the impact of environmental, social, and governance factors in our decision-making processes. Given our diverse product offering, balanced in-market approach, and strong customer relationships, we expect to see growth and a strong financial performance in fiscal year 22. With that, we appreciate your continued support of CENTAC and look forward to updating you all next quarter. Thank you.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful evening.

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