Semtech Corporation

Greetings. Welcome to SEMTECH Corporation conference call to discuss the fourth quarter and fiscal year 2022 financial results. Speakers for today's call will be Mohan Maheswaran, SEMTECH's President and Chief Executive Officer, and Emeka Chukwu, SEMTECH's Executive Vice President and Chief Financial Officer. Please note this conference is being recorded. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. I will now turn the call over to CEMTAC's Executive Vice President and Chief Financial Officer, Emeka Chukwu.

Emeka Chukwu Thank you, Alex. 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 could cause actual results to differ materially from the results anticipated in these statements. For a more detailed discussion of these risks and uncertainties, please review the Seth Harbaugh 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 calls are current as of today only, and CENTAC undertakes no obligation to update the information from this call should facts or circumstances change. All references made to financial results in my prepared remarks and Mohan's prepared remarks during this call were referred 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 financial measures are included in today's press release. In Q4 fiscal 22, the company delivered net sales of $190.6 million. a decrease of 2% sequentially, and an increase of 16% year-over-year, and was once again above the midpoint of our guidance. Fiscal 22 revenues grew 24% to a record $740.9 million, while ETS grew 49% to a record $2.61, or more than two times the rate of net revenues growth. The strength of the secular drivers behind our growth engines contributed to the strong net sales performance, despite the challenges presented by COVID and supply constraints. In Q4, shipments into Asia, North America, and Europe represented 78%, 13%, and 9% respectively. While this represents the ship to addresses for our distributors and customers, we estimate that approximately 33% of our shipments are consumed in China, 29% in the Americas, 19% in Europe, and the balance over the rest of the world. Total direct sales represented approximately 11% of net sales, and distribution net sales represented approximately 89%. Our distributor POS represented another quarterly record, and the business remains balanced with approximately 42%, 32%, and 26% of the total POS coming from the infrastructure, industrial, and high-end consumer end markets, respectively. In Q4 of fiscal 22, net revenues from the high-end consumer market decreased 22% sequentially and 6% over the prior year, and represented 25% of total revenues. Approximately 13% of high-end consumer net revenues was attributable to mobile devices, and approximately 12% was attributable to other consumer systems. Net revenue from the industrial end market increased 10 percent sequentially and 38 percent over the prior year and represented 39 percent of total net revenues. Finally, the infrastructure end market increased 3 percent sequentially and 14 percent over the prior year and represented 36 percent of total revenues. Q4 bookings increased 35 percent sequentially And those bookings accounted for approximately 3 percent of our Q4 shipments. Q4 growth margin increased 70 basis points sequentially to 64.5 percent, which represented the upper end of our guidance range and the new quarterly record, driven by a higher mix of our growth drivers that include lower enabled 10 gig pound tri-edge PAM-4 CDLs, 5G wireless, and broad-based industrial protection products. For Q1, we expect growth margin to continue to expand, reflecting the benefits of continued strength of our growth engines. In fiscal 23, we expect our growth margins to trend higher by 100 to 200 basis points from a favorable richer mix of our growth platforms. Q4 operating expense increased slightly to $68.7 million, driven by higher new product development expenses. For Q1, we expect our operating expense to increase by 4% due to higher compensation expenses, which is typical at the start of the new calendar year. Looking ahead to fiscal 23, we expect our operating expense to trend back towards our target model of half the rate of revenue growth. In fiscal 22, operating profit grew 45%, approximately two times the rate of revenue growth, led by the higher gross margin, and represented a record operating profit. Operating margin expanded approximately 400 business points to 27.4%, and represented a solid progress towards 32% to 36%. percent long-term target model. As expected, we are seeing the strong operating leverage expected from the success of our growth platforms. Our fiscal 23 non-GAAP normalized tax rate is 12 percent, slightly lower than the 13 percent in fiscal 22 due to a more favorable mix of regional income. In fiscal 22, Cash flow from operations was a record $203 million, up 71% from fiscal 21 and was 27.4% of net sales, which represented a 740 basis points expansion from fiscal 21. This is the record of record operating profit and good management of working capital. Correspondingly, The free cash flow increased 105% to 24% of net sales. Around the low end of our long-term free cash flow target of 25% to 30% of net sales. Cash flow generation in fiscal 22 was very strong, despite the strategic actions to maintain higher levels of inventory because of strong demand and supply constraints. In Q4, we repurchased approximately $33 million of outstanding stock. And for the full year, we repurchased approximately $130 million, or 2.7% of outstanding stock, and resulted in approximately $259 million remaining in our outstanding authorization. We expect to continue to use our cash to opportunistically repurchase our shares. make strategic investments, and pay down our debt. Q4 accounts receivable decreased 4% sequentially to $72 million, while days of sales were in line with the prior quarter at 35 days. In Q4, net inventory in absolute dollars increased 8% sequentially, and days of inventory increased 13 days sequentially to 146 days. We expect net inventory to remain above our target range of 90 to 100 days to support the higher demand and the tighter supply chain environment. In summary, we are very pleased to deliver a record financial performance in fiscal 22, despite the supply chain constraints and continued pandemic headwinds. We are pleased to see our years of investment in technology platforms that enable a smarter, sustainable planet, drive record revenues, record gross margin, record earnings per share, and record cash flow from operations. The financial model is delivering strong leverage. In fiscal year 23, We believe the long-term circular nature of our growth engines of LoRa-enabled, Tri-Edge PAM-4, 10-gig PON, 5G wireless, and broad-based industrial protection platforms positions us nicely for another record financial performance in fiscal 23. I will now hand the call over to Mohan.

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year 22 performance by product group. discuss our fiscal year 22 performance, and then provide our outlook for Q1 of fiscal year 23. In Q4 of fiscal year 22, net revenues of 190.6 million represented a 2.2% sequential decline, which was much better than our typical seasonality of 5 to 10% down. We posted record non-GAAP gross margins of 64.5% and non-GAAP earnings per diluted share of 70 cents. In Q4 of fiscal year 22, our signal integrity product group grew 21% over the prior year and achieved another quarterly record and represented 39% of total revenues. Record demand from our pond business contributed to the growth. Our data center demand remained soft as customers managed year-end inventory. However, Q4 data center bookings increased significantly in the quarter. and we are expecting data center revenues to rebound nicely in Q1, led by growth from our tri-edge short-reach PAM4 platform. We have continued to attain new tri-edge design wins across multiple geographies in 100 gig, 200 gig, and 400 gig PAM4 optical modules. In FY22, revenue from our tri-edge platform increased over 700% to approximately $14 million, And we now expect our data center triage revenues to triple in FY23 as more customers move to full production. And we increase our market share over DSP solutions in the 200 gig and 400 gig PAM4 segments. In addition, we are now sampling our long reach triage platform targeted at 200 gig FR4 optical modules. These new parts approximately double our SAM in the hyperscale data center market. We are confident that Tri-Edge's ultra-low power, low cost, and low latency, together with FiberEdge's higher performance, will enable us to continue to grow our hyperscale data center business over the next few years. In Q4 of FY22, Revenue from our pond business represented another quarterly record driven by continued strength from our GPON platforms as global demand for higher access bandwidth remained strong. While the China market continues to lead pond demand, US, Indian, and European service providers have all announced pond deployments, which we believe bodes very well for future pond demand growth globally. Semtech is the leading PMD supplier to the global PON market, providing the most comprehensive PON PMD portfolio. We recently announced our first 25 gig PON PMD device for 25 gig OLT applications, which has been designed to interface to Semtech's ClearEdge family of CDRs. As PON systems increase in bandwidth, we anticipate that the integration of CDR functions into pond modules will be necessary. We are also in development of advanced PMD technologies for 50 gig pond systems that will partner with our leading edge Tri-Edge PAM4 platform. As a result, we expect our pond business to continue to grow over the next few years. In Q4 of FY22, revenue from our wireless base station business was approximately flat from Q3. We continue to win new designs for both ClearEdge and TriEdge in 5G base station front-haul optical modules. We recently announced the industry's first 50-gig PAM4 CDR with integrated driver targeted at 5G wireless infrastructure, which is currently in field trials at several Tier 1 system vendors. We expect the wireless base station market to strengthen in FY23, And we believe our 5G momentum based on both our clear edge and tri-edge winds should enable our wireless base station business to deliver solid growth in FY23. The underlying secular demand strength we witnessed in FY22 driven by the quest for higher bandwidth at the lowest power across all infrastructure segments is expected to continue into FY23. In Q1, we expect our signal integrity product group revenues to increase and deliver another quarterly record. Moving on to our protection product group. In Q4 of fiscal year 22, net revenue from our protection product group decreased 7% sequentially as expected due to seasonality and increased 11% over the same period last year and represented 28% of total revenues. Demand from our consumer customers softened in Q4. However, as expected, bookings from the consumer market strengthened nicely, and we expect our consumer protection business to increase in Q1. In Q4, demand from our broad-based protection products grew 33% from a year ago. Our protection business continues to diversify into a broader range of segments, including industrial, communications, automotive, and IoT. As more systems designers use chips with advanced process geometries, we expect demand for CEMTEX high-performance protection to increase across all market segments. Our broad-based protection business continues to grow nicely and is a major contributor to our increasing gross margins. In Q1 of fiscal year 23, we expect our protection revenues to increase. Turning to our wireless and sensing product group, in Q4 of fiscal year 22, revenues from our wireless and sensing product group increased 13% over the prior year and represented 33% of total revenues. In Q4, our LoRa-enabled revenues achieved another quality record as the adoption of LoRa in low-power IoT applications continued to accelerate. During the quarter, we announced several exciting use cases, which included a joint initiative with Lacuna Space to further increase LoRaWAN coverage in areas of the world without cellular or Wi-Fi. Tencent Cloud, a leading technology company in China, announced it has integrated our LoRaCloud geolocation services into the Tencent Cloud platform. The city of Cary in North Carolina is leveraging new LoRaWAN sensor connectivity and predictive data analytics from system integrator SAS, together with Microsoft Azure, to better monitor flood levels and provide additional community services to its citizens. ICT International's precision environmental sensors are leveraging LoRaWAN to enable smarter monitoring of the urban forest based on a data-centric approach. And Elvexis, a designer of innovative energy transport and distribution networks in Europe, together with Oiken, a Swiss distributor of electricity, are leveraging LoRaWAN connectivity and integration into their existing SCADA system to monitor and fix power grid failures. Also in Q4, the LoRaWAN protocol was officially recognized as a global standard by the International Telecommunications Union, ITU. We expect this recognition to enable global interoperability and enable massive scaling of LoRaWAN. LoRa's low power, long range, and network flexibility is enabling the connection of billions of sensors to enable a smarter, more connected, and sustainable planet. In Q4 of fiscal year 22, revenue from our proximity sensing platforms softened as expected due to lower seasonal demand following the strong first half. Global RF regulations targeted at protecting users from increasingly more powerful radios are expected to drive more stringent radio power requirements on smartphone and wearable manufacturers. We expect an expansion of these regulations in Asia towards the end of this fiscal year, which will benefit our proximity sensing business as 5G mobile devices proliferate over the next few years. For Q1 of fiscal year 23, we expect net revenues from our wireless and sensing product group to increase and deliver another record quarter led by our LoRa business. Moving on to new products and design needs. In Q4 of fiscal year 22, we released 10 new products and achieved 3,237 new design wins. Now let me comment briefly on our fiscal year 22 performance. In fiscal year 22, net revenues increased 24% to a record $741 million, driven by strength from all of our product groups. In FY22, we had 55 new product releases and also achieved a record number of design wins of 13,083. representing a 16% increase from the prior year. In FY22, our signal integrity product business grew 14% over the prior year to achieve record revenues. Global infrastructure demand remained strong, leading to record pond revenues. Our SIPP product group achieved record bookings in FY22, and we expect our Signal Integrity product group to deliver another record in FY23, driven by strong growth from our tri-edge PAM4 products for the hyperscale data center market and 5G wireless base station market, and continued strength from the PON market. In FY22, our protection business grew 26% over the prior year, driven by our broad-based protection business, which grew 34% to achieve a new revenue record, We expect both our consumer protection and our broad-based protection businesses to continue to grow as the needs of the circular economy drive strong demand for Semtech protection products in the automotive, infrastructure, IoT, and consumer segments. We expect our protection business to achieve double-digit growth again in FY23 and deliver record revenues in FY23. In FY22, Our wireless and sensing business grew 39% over the prior year and achieved record revenues. Our LoRa-enabled revenues grew 53% annually to a record $134 million. In FY22, our LoRa business continued to make solid progress on the growth metrics we have established. These metrics included The number of LoRa network operators grew to 166 at the end of FY22 from 150 in FY21. We expect 180 LoRa network operators by the end of FY23. The number of LoRa gateways deployed increased 146% from 1.3 million gateways in FY21 to 3.2 million at the end of FY22. We expect the number of LoRa gateways deployed to increase to over 5 million by the end of FY23. We are delighted with the large increase in gateways deployed globally, as this LoRa infrastructure is critical to enable the broad range of industry use cases that are emerging. PicoCell gateway deployments increased over 190% versus FY22. This increase in PicoCell gateway deployments is being driven by the smart home and smart campus segments as Amazon Sidewalk Gateway deployments increased over 180% versus FY21. In addition, the Helium People's Network is growing very fast and deployment should accelerate nicely in FY23. Both Sidewalk and Helium networks should drive an acceleration in end device deployments over the next few years. In addition to PicoCell deployments, our macro gateway deployments increased 43% over FY21, driven by smart utility, smart logistics, and smart city initiatives globally. And this infrastructure increase should also drive a rapid acceleration in endpoint deployments over the next few years. The cumulative number of lower end nodes deployed increased to 240 million at the end of FY22 from 178 million at the end of FY21. We expect this number to exceed 300 million cumulative end nodes by the end of FY23. With continued network expansion globally, we expect end node deployments to accelerate rapidly over the next three to five years. The LoRa opportunity pipeline, which includes both opportunities and leads, ended FY22 at approximately $950 million. We anticipate that on average 40% to 50% of the opportunities currently in the pipeline will convert to real deployments over a 24-month timeline. Our opportunity pipeline remains well balanced with use cases primarily in smart utilities, smart logistics, and asset tracking, industrial IoT, smart home, and smart cities. At the end of FY23, we are anticipating our total opportunity pipeline to exceed $1.3 billion. For FY23, we are expecting another record year from our LoRa business and anticipate a 40% CAGR for our LoRa-enabled business over the next several years. We also expect our wireless and sensing product group to achieve another revenue record in FY23. Now we discuss our outlook for the first quarter of fiscal year 23. Following the very strong bookings in Q4 and entering Q1 with record backlog, we are currently estimating Q1 net revenues to be between $195 million and $205 million. To attain the midpoint of our guidance range, or approximately $200 million. We needed zero terms orders at the beginning of Q1. We expect our Q1 non-GAAP earnings to be between 72 and 80 cents per diluted share. I will now hand the call back to the operator, and Emeka and I will be happy to answer any questions. Operator?

Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is on the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the star keys. Our first question comes from the line of Tori Spanberg with Stiefel. Please proceed with your question.

Yes, thank you, Mohan and Emeka, and congratulations on all the record metrics, quite a few of them. First question, you're expecting gross margin to expand 100 to 200 basis points this year, and you attributed that primarily to mix. Should we infer by that that the similar integrity group will show the strongest growth this year?

Sorry, can you repeat the last section of your question?

Yeah, given your comment about mixed and gross margin expanding this year, should we infer by that that the single integrity group will show the strongest growth this year?

We'll show the strongest growth. I think we do expect all of the groups to grow very nicely. The lower enabled is still going to probably, you know, lead the way in terms of absolute dollars growth. signal integrity with our tri-edge platform and our 10-gig platform should grow very nicely for us. So, you know, I don't know that it's going to be signal integrity, but I think both Laura, the tri-edge, the 10-gig port, they're probably going to lead the way in terms of our year-over-year growth.

And the ITA business in protection, Tori, so as we get more broad-based protection business, that certainly also drives higher gross margins.

Very good. And Mohan, you know, this time around, you gave us a quarterly revenue for LoRa. And you also gave us a number for the growth in precocell deployments. I mean, I'm assuming that that's sort of an indication that the technology is now really moving into more sort of the consumer world. But yeah, I was just hoping you could elaborate on, you know, why you decided to give us those two metrics this call.

Well, the PicoCell gateways, you know, I've been giving metrics out on gateway deployments, but I felt now it's gotten to such a large number that we'll start to break out a little bit, the PicoCells and the macro. The macro does tend to be more industrial, you know, smart utilities and smart cities and smart buildings. It's not to say the PicoCell doesn't go into those types of segments, but a large part of the volume is driven by smart home and smart campus. I wanted to provide that color because we do get that question a lot. And then I think in terms of the quarterly number, we won't give out the quarterly number. We'll continue to talk about 40% CAGR. But, you know, obviously we'll try to give an indication of how we're doing against that. And, of course, you know, for the annual number, you know, we said that we were going to grow at least 40%. We grew 53%. And so, you know, we wanted to share that information with you.

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

Hi, good afternoon. In terms of the revenue pipeline, so I think the numbers you provided, you know, show a over 30% increase year over year. So is that how we should be looking at lower revenue for this year as well? And also, if you could remind us, the exposure that you have in China for your law business, which I know has been tracking in kind of a 55% range of revenue in prior quarter last year.

Yeah, let me start with that, Tristan. China is about 50% of the revenue, but in terms of opportunity pipeline, it's about 30%. It's much more balanced, as we've been saying. The pipeline now in North America is also in that range. But from a revenue standpoint, still 50% is China. And then in terms of the opportunity funnel and revenue and gateway deployments, you really can't correlate these because their timing is different. You know, when we ship products, we ship into distributors. When distributors ship into module providers, module guys sometimes ship into the OEMs, and then the OEMs, you know, build hardware and then deploy deployments of networks. So part of the reason why, you know, we give out these metrics is that the timing of these deployments and when we see the actual revenues versus when the deployments actually occur, you know, it's different. And it's difficult for us to exactly, you know, determine the exact timing. So we give an indication that each of the areas are growing nicely, which I think is what's important.

Okay, great. And then for my follow-up, I wanted to talk a little bit about what you're seeing in China, given that about half of your consumer business is smartphone, and most of that, I believe, is China. Now, you've said that you expect the consumer to rebound. What are you seeing in terms of inventories in your China smartphone business, and what is the risk that those inventory, you know, this inventory correction continues to happen over the next couple of quarters. And is that also something that could potentially impact your low-up business? I understand low-up has come down in China as a percentage of the mix, but it's still 50%. So is that kind of a near-term headwind that you can think of for the next few quarters?

Well, so China demand is obviously very important to us still for all areas of the business, all product groups. And as we monitor it today, demand is still strong. Consumption is strong. There's nothing to indicate any weakness in our particular segments, I think. With the consumer demand, I mentioned Q4. typically is down and was down. And the second half of FY22 was not strong for consumers. And bookings have increased, have improved. So we are expecting a little bit of a rebound in the first half. I think the second half is the big question, I think, not only for China, but really for the rest of the world in terms of demand and all the macro events. But certainly for the first half, we are not anticipating any issues.

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

Yeah, thanks for taking the questions. I wanted to come back and follow up on Laura and do it this way Mohan. So if we were to rewind the clock about a year and think about the momentum that Laura's gained over the last four quarters, it really did seem to build each quarter and then you had the very, very strong fiscal fourth quarter. My question is this. I know the company has had for some time and retains the 40% growth target, but given the level we're exiting fiscal fourth quarter 22, you know, why wouldn't we be seeing the potential for potentially materially above 40% year-on-year growth in fiscal 23, perhaps to the same degree that we did last year?

No reason, Craig, other than, you know, it's difficult to time exactly, you know, obviously the revenues, as I mentioned, the momentum sometimes in terms of network deployments and use cases being deployed gets ahead of when end nodes are being deployed and things like that. So, you know, we had anticipated 40% growth this last fiscal year, FY22. Obviously, we did 53%, so we did significantly higher. There's nothing to suggest that, you know, we won't have another similar year, but, you know, I think in terms of the outlook for the next three to five years, 40% is a very good number that we feel good about given the different types of metrics and how, you know, the opportunity funnel is laying out. And remember, our opportunity funnel we look at is real design opportunities and We're looking for the conversion of those opportunities into real deployments, and that's really what drives our revenue model.

Got it. Very helpful. And then I don't know if it's you or Emeka that I should congratulate for having a quarter's revenue guidance require zero returns, but nice to see that kind of backlog coverage, guys. But, Emeka, I wanted to flip it to you and actually talk about another line item. So very helpful to get the – the fiscal 23 gross margin color that Tori asked about. But my question is this. So if we look at the last four or five quarters, we've had very material, sequential gross margin improvement. And the color for fiscal 23 would imply, I think, just 20 to 30 basis points from here through the year. So what's happening within MIX that caused gross margins to expand so materially? over the trailing four or five quarters, and why would it not stay on that pace and instead moderate to something that's more implied in the guidance? Thank you.

Yes. So, Craig, I think, you know, we've been saying this for a while, that a lot of our investments have been going into markets that we expect to grow very fast and that we also expect to have very high gross margins. And it is very pleasing to actually see that beginning to play out, the Lorraine-leveled 10 gig port, the protection IT industrial businesses. That is really very pleasing to see. You know, as we go forward in FY22, we saw about 180 business points of gross margin expansion year over year. There is nothing that says that we cannot duplicate that again in FY23, and that's why the guidance for 100 to 200 basis points. But we'll have to see. We'll have to see. You know, the expectation is that we will continue to see gross margin expansion, but we just have to see how things play out, especially there are still things out there. You know, I mean, with the war in Ukraine, we don't know what the impact is going to be on the supply chain that is already feeling a lot of heat and things like that. But we'll see, but we're very hopeful and we're very excited with our gross margin story.

Thank you. Our next question comes from the line of Quinn Bolton with Needham & Company. Please proceed with your question.

Hey, guys. I'll offer my congratulations as well, and I guess really sort of a follow-up to Queb's question on Laura. If I just do the math, you gave us the full year, you gave us the fourth quarter. It looks like LoRa in the fourth quarter, you know, was 41.7. And for the average of the first three quarters of the year, it was closer to 31. So it looks like there was a pretty dramatic acceleration in the LoRa business in the fourth quarter. And I'm just wondering, Mohan, if you can give us some sense, is that driven by just continued gateway deployments? Are you seeing a particular use case? Is it end notes? You know, what really drove that acceleration in the fourth quarter?

Yeah, I would say at this moment, Quinn, it's more the infrastructure. So more gateways at the moment driving it. But I think that's the good news, which is for us that infrastructure is being deployed. And then, you know, we'd expect end nodes to follow, the timing of which is tough to call. But yeah, you know, this is not unexpected. I mean, if you go back a couple of years ago, we were running at, you know, $10 million a quarter. And now we're running, you know, closer to $40 million a quarter. And so, you know, You know, it's been trending upwards, and it's been trending upwards not by a mistake. I mean, it's, you know, infrastructure going in, gateways, macro gateways, deployments, real IoT use cases. We're seeing Elora ecosystem really expand. We're seeing Elora Alliance has increased the number of companies in the Alliance, but also the types of companies. We now have, you know, Microsoft Azure, Amazon, you know, really big players in the ecosystem. that are now starting to drive use cases as well for us. So the whole machine is moving in the right direction. We said it was going to happen. It's just a question of time. And now, as we're starting to see it, it's just really translating into deployments. And remember for us, when we generate revenue, when we ship product into our into our customers, right? But the deployments take a little bit longer and so we're monitoring that and then the use cases get deployed. And the good thing is that really if you look across the globe now, Maura is very well, you know, I mentioned the ITU, You know, LoRaWAN being standard now in the ITU, recognized by ITU, that's really significant because now the whole globe can use LoRaWAN, and knowing that there's interoperability there, we're starting to see roaming agreements across these networks. You know, the PicoCell, I pointed that out because it drives different types of use cases, some of which we've been talking about for a while, like tags and things like that, but there hasn't been the infrastructure in place, and I think that's starting to change now. Very exciting to see that. Yeah.

And I guess the follow-up to that was I believe you had mentioned two applications, Sidewalk and Helium Network, driving some of those gateway deployments in fiscal 22. Do you have line of sight into sort of the end nodes? Maybe not the exact timing of the ramp, but do you feel confident that those end nodes are being designed and it's sort of just a matter of time before we start to see, you know, a pretty meaningful pickup in the end nodes? on those particular networks?

Well, what I know, Quinn, is that there would be no end loads if we don't have infrastructure in place. So now the infrastructure is going in and the gateways are going in and starting to get deployed and, you know, sensors are being developed for these networks. I feel pretty confident about it. But, you know, I think it's going to take a few years. I don't think it's something that's going to happen overnight. And this is the type of You know, these are type of use cases that can drive very, very high volumes very quickly. In other cases, it might take some time. So, as I mentioned, you know, a lot of use cases need density of network. And so, by having these type of networks and there's no roaming agreements come into place, it does drive different use cases. So, that's the exciting factor that I think we're yet to see, which I think we will see over the next couple of years here.

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

Yes, thanks. Excuse me, and I'll add my congratulations, guys. Just maybe another follow-up on Laura, but, Moan, I think you've spoken in the past about your long-term plans for that business, and you talked about moving to more of a licensing and royalty-type model, and I was just curious if there were sort of what metrics you need to see to consider opening LoRa up, you know, as a standard and sort of making that shift away from, you know, silicon as your primary source of revenue for LoRa. I think it's, and correct me if I'm wrong, I think still over 90% or so of revenue is still coming from the chip side. So is that sort of when we get to your 500 million kind of target in the next sort of three or four years? Just curious kind of how you're thinking about that business.

So, yeah, Rick, that's a good question. And first of all, yeah, most of the revenue is today just ship sales. We are starting to see IP royalties come in now a little bit. The key driver is the cloud services revenues, which we just started. It really has – it's just the early days, but we – I mentioned on my prepared remarks that we have signed a relationship with Tencent in China. We're starting to look at more relationships to see if we can get our cloud services revenues based on our lower edge chip platform starting to really grow. And the goal is to get that to $100 million of recurring revenues. That's what I've said will then trigger a discussion about, you know, is that a business that, you know, we can start to look at the chip business and the cloud business separately. But I think we're a ways off that yet, at least three years, but probably more like five years.

Oh, thanks for that. And then on triage, I mean, thanks a lot for the color on that business. I mean, $40 million, $45 million this year, I think you said, expected. I mean, that business seems to really be sort of taken off. I know we've talked about it the last couple of years. I mean, were there any, like, obvious hurdles that just needed to be overcome? I mean, are we sort of at that tipping point now for that business? And how do you look at it in terms of, like, how do you size the market opportunity there, I guess, for analog platform? Thanks.

Yeah, well, the good news here is that, you know, we didn't really have any PAM4 products until Tri-Edge. And so, you know, we were a little bit behind the DSP solutions out there. And so, it's all share gains for us in this space, I think, the way I look at it. And so, with our first 50-gig PAM4 short-reach products, we knew we had limitations on reach, but we knew that also the power consumption is going to be extremely beneficial to data center customers that cared about power and care about cost, and so we're starting to see that momentum now in the short-reach side. And as I mentioned, we're just sampling now the longer-reach products for 200-gig FR4 modules, which is a two-kilometer kind of range, which really opens up the whole data center space for us, and we're excited by that. And obviously, we have quite a few developments in this area as well. More to come, but yeah, very exciting, and we expect the data center to be quite strong for us over the next few years.

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

Hey, guys. Thanks for taking my question. If I look at the midpoint of your Q1 revenue guide, it's about 4.9% sequential growth. I'm curious to know if that's benefiting at all you know, point of purchase increase, or would you expect a commensurate increase in your point of sale as well?

So, point of sale is also records for us at the moment, and we're expecting another recording Q1. So, yeah, I think your question, Gary, was tied to ASP increases. And, you know, at the moment, the way we're thinking about it was that You know, any type of cost increases we get will pass on to our customers. But, yes, we do expect POS to increase in correlation with that.

Yeah, I mean, I guess it would encapsulate some price increases. I was really more so asking if it was a function of distributor inventory increasing.

Oh, no. So I think, you know, our POS is very strong. As we mentioned on the call, it's a record. You know, cycle times, supply chain cycle times have not changed. They are very extended at the moment. And so, you know, you'll see our internal inventory has increased. I expect our channel inventory to increase a little bit. But at the end of the day, as long as POS is also increasing, in other words, the consumption is increasing, then I think we're in good shape. Okay.

And Emeka, did you, just to clarify, did you say bookings were up 35% quarter over quarter? And it related to you know, supply, I presume with the 13-day increase quarter-by-quarter in your DOI and with it running above, you know, historical levels, that you're really not dealing with any supply constraints. And if that's the situation, you know, how have you guys been able to escape this while everybody else in the industry is dealing with it?

Yeah, so, you know, if I go back a couple of years here, probably prior to the pandemic, we had actually, we were anticipating to start seeing the ramp of some of these new product platforms that we were seeing now. So we did pay attention to our supply chain, and in some cases we made sure we had second sources and all that stuff all lined up. And so we are very fortunate in that way that when the pandemic hit, we're already in a very good position with regards to the supply chain. So, you know, we've managed that very well, I think. You know, it doesn't mean that we don't have any supply constraints at all. You know, there are little pockets here and there, but on the average, I think we are in a very good position with where our inventory levels are and are very pleased to see that we are able to support a lot of the strong demand that we're seeing at this point.

Thank you. Our next question is a follow-up from Tori Svanberg with Stifel. Please proceed with your question.

Yes, thank you. I just had a follow-up question on all the products that you introduced at OFC. It was a pretty impressive lineup. And specifically in relation to Pa and Mohan, you know, that market has always been a bit volatile, especially because of China. But I think this is going to be your second consecutive year with very strong growth. How should we think about that market and your new products for that market as we go into Cisco 24?

Yeah, I would say, Tory, your observation is exactly right. You know, PON has become a totally different space now. It's a totally different market. And I think what's really driven that is the pandemic. When we look at the pandemic and what drove more access bandwidth. There were clearly bottlenecks in the access side. And so, PON is a really good way to solve that problem. And I think China has demonstrated that and continues to demonstrate that. But the rest of the world has also now started to accept that. And so, we're seeing North America, Europe, and India, as I mentioned, and other regions starting to really look at PON as the key access bandwidth. We've seen an acceleration of GPON. We've seen an acceleration of 10GPON. Obviously, that's also helping gross margins, and we are playing, obviously, in both the OLT and ONU side. And then the other really intriguing thing for us, which is very exciting for us, is the expansion into 25GPON. And 25GPON, the modules, as I mentioned on my prepared remarks, will likely need CDR functionality as well. So that opens up a more content for us. We're obviously leaders in the PMD side. We're, you know, one of the leaders in CDRs. And so the combination of the two in PON gives us a very, very good position there. And we're even, you know, I mentioned we even have developments at 50 gig PON. So very exciting generally. I would say a good space to be in now and probably for the next five to 10 years. This is a space that is going to get a lot of investment in, I suspect.

Very good, Mohan. Congrats again. Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session, and I will now turn the call over to Mohan Maheswaran for closing remarks.

In closing, we were pleased with our strong Q4 and record fiscal year 22 results. Despite the challenging pandemic and supply chain environment, we believe our multisourcing initiatives and our investments in infrastructure and tools has enabled us to maintain best-in-class business operations. Our key growth engines targeted at broadband infrastructure, creating a smarter planet, and enabling mobility are all doing very well, and we expect FY23 to deliver another record year for Semtech. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.