Synaptics Incorporated

Good day and thank you for standing by. Welcome to the Synaptics, Inc. second quarter fiscal year 2023 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Munjal Shah, Vice President, Investor Relations.

Thank you, Josh. Good afternoon, everyone, and thank you for joining us today for Synaptic's second quarter fiscal 2023 conference call. My name is Munjal Shah, and I'm the Head of Investor Relations. With me on today's call are Michael Holston, our President and CEO, and Dean Butler, our CFO. This call is also being broadcast live over the web and can be accessed from the investor relations section of the company's website at synaptics.com. In addition to a supplemental slide presentation, we have also posted a copy of these prepared remarks on our investor relations website. In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs, and certain other non-cash or recurring or non-recurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results. It can be accessed from the investor relations section of the company's website at synaptics.com. Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operation, plans, objectives, future performance, and business. Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. We refer you to the company's current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K and current report on Form 10-Q, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

Thanks, Vijal. I'd like to welcome everyone to today's call. Our fiscal second quarter financial results were within our guidance range, a good outcome given the dynamic macroeconomic conditions. Our financial performance would have been at the midpoint of guidance or better, say for one deal in our IoT product group that did not close in the quarter as expected. Dean will provide more details regarding this later in his remarks. Let me start with an overview of the macro conditions and how it's impacting our business. Given our exposure to a wide range of end markets, we have seen different facets of our business experience headwinds at different times. We first saw weakness in mobile phones, followed by PC, then consumer, and are now beginning to see softness in our enterprise business, which is our second largest end market. The good news is that recovery is also expected in phases, and we have already seen early signs of improvements in mobile and PC. In general, the biggest issue we're facing is an accumulation of inventory. Our visibility into channel partners indicates sell-through exceeded our sell-in during the December quarter in many product areas. We anticipate we will continue to undership natural demand in the first half of CY 2023 as we clear inventory. While we remain uncertain as to the precise timing of recovery, Our best estimate at this time is calendar Q3, given current rates of inventory bleed off. With that said, we continue to innovate and focus on our three biggest market opportunities, all of which are in our IoT product area. The first of these is our initiative to drive wireless workspaces. At this year's CES, we showcased the first wireless docking station from our partner Lenovo. The product features are Wi-Fi, video conversion, and video decoding ICs. The next phase of growth involves enabling high-fidelity wireless monitors. Ultimately, we see a clean desktop with no wires at all. In addition, we can enable advanced video conferencing hubs where the base system is connected to monitors wirelessly, saving corporate IT departments time and money. All of this is possible with our advanced low latency video compression technology. While wireless workspaces represent the future, our present is also strong as we continue to dominate the current generation of docking stations and are already beginning our move into video conferencing systems. Our latest chip, Novaro, will bring a new level of performance to universal docking stations, enabling two 8K or four 4K monitors simultaneously. In addition, we recently introduced our latest video conversion device, Carrera, with industry-leading SERDES technology optimized for USB4 version 2 and DisplayPort 2.1 that brings both video and graphics to high-definition monitors. As an early sign of success in video conferencing, we had a key $10-plus design win in HP's new presence system that was named one of the best inventions of 2022 by Time Magazine. Our second large opportunity is in wireless connectivity. Our design wins and pipeline of opportunities continues to increase, giving us confidence to target $1 billion in annual sales over the next three to five years. We offer the broadest portfolio of wireless technologies among all our IoT competitors, including Wi-Fi, Bluetooth, Red Zigbee, ULE, and GNSS. Our latest combo chip design wins encompass large customers such as Amazon and Google, kitchen appliances, and wearable cameras. Our Wi-Fi Bluetooth combos have started to see success in new market segments such as enterprise, operator, healthcare, and even smart cities. Our ULE technology has been an entree into customers such as ADT, Vivint and Versure were able to sell a litany of products, including video decoders for hubs, Wi-Fi for security cameras, and Edge AI devices for blast-like detectors. In GNSS, we recently announced the availability of the 4778, a chip designed in 7-nanometer CMOS that offers customers up to 80% more power efficiency. Its monumental step function improvement in power savings is particularly important for any product depending on a small battery, such as a wearable. Despite a recent speed bump in terms of significant inventory buildup, we remain confident in our wireless business and expect it to return to outsized growth in the calendar year. Our third major growth driver is automotive. At CES, we introduced a new product, Smart Bridge. This device replaces an existing protocol conversion device but adds a feature dubbed local dimming. Local dimming greatly increases the contrast ratio in automotive displays, making a typical LCD display look and perform like OLED. The smart bridge increases our content per vehicle to $25 to $30. In addition, we continue to benefit from the rapid conversion of discrete touch and display circuits to TDDI in the infotainment display. We will look to expand our automotive footprint through both M&A and organic development. Other notable parts of our IoT portfolio include enterprise telephony and audio headsets. In enterprise telephony, we continue to expand content with both wireless and video decoding for small screen conferencing. In audio headsets, we continue to dominate in enterprise class products, particularly with DECT connectivity. Turning to PECs, revenues were in line with our expectations but down sequentially as customers worked through their inventories. We are shipping below the reduced end demand and are seeing signs of an improving inventory situation. As it stands, we expect the March quarter to mark the low watermark for revenue and measured improvement thereafter. In the meantime, we are pursuing content and TAM expansion. We are gaining traction with our presence detection technology and announce wins with both Dell and Panasonic. In fact, all major customers are engaging with us for this technology, which saves battery life by using AI algorithms to determine when a user is not actively engaged with the laptop. Presence detection has used cases beyond the PC, which we intend to pursue aggressively. In conclusion, we are working with our customers to reduce inventories in the channel. We are managing our expenses while continuing to invest in growth areas of the business. We will focus on things we can control, such as timely new product introductions, innovative roadmap, and design win conversions. Together, this gives me confidence in our long-term group potential. Let me now turn over the call to Dean to review our second quarter financial results and provide our outlook.