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spk01: Good day, and thank you for standing by. Welcome to the Synaptics, Inc. Fourth 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 this 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 of Investor Relations. Please go ahead.
spk03: Thank you. Good afternoon, and thank you for joining us today on Synaptic's fourth 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 detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations 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 quarterly 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.
spk09: Thanks, Manjal. I'd like to welcome everyone to today's call. We completed a difficult fiscal year where excess inventory led to top line revenue challenges. The good news is that we believe revenue has hit bottom. We can clearly measure inventory reductions in the channel and are seeing far fewer push out requests. While some area of our business are quarters away from a pronounced upturn, we are starting to see a return to normalcy in others, specifically PC and mobile. During the quarter, we opportunistically shifted our capital allocation to share buybacks and repurchased approximately 1 million shares, adding to the 1 million shares purchased earlier in the fiscal year, totaling out to be about 5% of our shares outstanding. Before providing our normal quarterly update, let me highlight the key aspects of our recently announced agreement with Broadcom. Most important, we get critical Wi-Fi 7 technology as part of the transaction. which represents a 30% ASP uplift over Wi-Fi 6. It enables us to accelerate the high-performance part of our Wi-Fi Bluetooth combo roadmap, allowing us to sample Wi-Fi 7 products by the end of 2024. The agreement not only stretches our lead in high-performance Wi-Fi for IoT applications, but also allows us to focus our internal resources on the more critical, low-power, broad-market part of the roadmap. In addition, the transaction gives us Bluetooth 6.0 and Bluetooth Enterprise, two important pieces that were on our technology roadmap. Finally, it gives us some market-leading devices to sell into our field of use, a critical Bluetooth chip for enterprise headsets, a Bluetooth standalone device that opens new markets for us, and lastly, a Wi-Fi 6E device that complements our existing high-performance IoT portfolio. As part of the agreement, we extend the exclusivity of our license to IoT markets by an additional three years. Coupled with our internal efforts, this new deal gives me additional confidence that we can achieve our $1 billion wireless revenue target. Moving to the June quarter, revenue was slightly above the midpoint of our guidance range with our IoT products beating our prior forecast. The mix within IoT continued to shift away from enterprise applications resulting in gross margin at the low end of the guide. We maintained our spending discipline and delivered non-GAAP EPS above the midpoint of the guidance range. As stated earlier, we made meaningful progress lowering customer and distributor inventories in the June quarter. We continued to undership end demand, but still believe it will take the remainder of the calendar year for channel inventories to return to normal levels. Dean will talk about gross margins in his remarks, but we believe those two will return to our long-term target of 57% as our product mix shifts back to IoT. Finally, we initiated targeted headcount reductions to ensure that we don't exceed our stated $100 million per quarter non-GAAP operating expense target while giving ourselves room to continue to hire into key investment areas. On the product front, we've started a journey to expand our existing processor portfolio into more deeply embedded applications. We have a few design wins now in this area, leveraging both existing software and hardware, differentiating with our AI capabilities. With limited investment, we believe we can unlock opportunities outside our traditional operator space in applications such as video conferencing, high-end smart appliances, point of sale terminals, factory automation, and security solutions. We will also leverage work being done in human presence detection to introduce a chip that can serve as the basis for an M55 based processing device that has advanced AI features. While we begin some critical future product advancements, we are winning at present in both our traditional operator base with multimedia products, as well as in headset customers. Panasonic's recently announced True Wireless earbuds feature two of our audio processing devices that offer our most advanced ANC and ENC algorithms. In wireless, we continue to burn inventory at our key module partner and signed a one-time deal with a large customer to scrap parts in order to see order flow again. As we begin to work our way out of the inventory challenges, we continue to enjoy sales success winning new customers on both our high-performance Wi-Fi Bluetooth combos and GPS product lines. We have a number of design wins at key customers such as Cisco, Google, Honeywell, VeriShare, and are building market share in the security, smart speaker, action camera, and wearable segments. Beside the traction we are seeing with our direct customers, We are also making progress in adding new module partners to extend our market reach. We believe our wireless business has bottomed and should return to growth in the next quarter or so. Automotive continues to be an area of relative strength with stable demand. Our pipeline continues to grow with new TDDI-based design wins for central information displays at Toyota, General Motors, Daimler, Volkswagen, and Porsche. While our design wind momentum and competitive position is strong in this market, we are experiencing pricing pressure for future designs. We plan to navigate this environment by focusing on introducing value-added enhanced solutions. In that vein, we are making progress with our smart bridge product, which has vastly superior performance, particularly around local dimming. and can save OEM customers between $10 and $15 on their bill of materials. Our enterprise sector has been a double-edged sword. While we were winning new designs at a remarkable clip, we were also experiencing significant inventory challenges. This quarter, we introduced our Carrera platform for enterprise docking stations. I'm pleased to report that we already have 10 different designs kicking off at the world's two largest docking station customers. In addition, our first wireless dock will be available for retail purchase later this month. We continue to do well in enterprise telephony, adding video conferencing and Wi-Fi to a couple of platforms that have recently gone to production. Unfortunately, this area of our business has been subject to inventory accumulation, and while we were able to reduce levels in the channel, full recovery is somewhat dependent on corporate spending budgets. Moving to PCs, We are seeing demand recover with the June quarter marking the bottom. Customer inventories have come down to normal levels, but overall PC sales are somewhat muted, particularly in the enterprise notebooks where we have outsized exposure. We're using the lull in the market to build share in our core fingerprint and touchpad technologies, while also introducing our leading human presence solution to more platforms and more customers. This feature extends notebook battery life by 20% or more, So we are optimistic that it will gain traction and we'll be sampling a new device later this year. In addition, we believe the advent of larger force-enabled touchpads where we have a performance and technology lead represents an opportunity for us to capture substantially higher ASPs and increase share. In mobile, the China Android market is stabilizing with channel inventory for our touch solutions returning to normal levels and our shipments are now more aligned with end demand. We are benefiting from a larger TAM as more phones switch to flexible OLED technology which requires our high-precision solution. We also continue to build momentum at Samsung with our first flagship phone launching a week or so ago, the Z Flip 5. This phone features two of our touch chips. We expect to build share with this customer during the next year. Core mobile strength is offset by the decline of our legacy DDIC business, which will continue to asymptote to zero over the next two years or so. To conclude, the business performed as we had anticipated in Q4, and our expectations for a gradual recovery going into 2024 remain. We remain enthusiastic about our wireless opportunity, particularly in light of the new agreement with Broadcom. We are increasing our processor opportunity by moving our high-end products into adjacent markets and by introducing a mid-tier solution that features a complex neural network and targets low-power applications. While the enterprise market is experiencing abnormally high inventory levels, we continue to be excited about the complete platforms we are introducing with numerous synaptic semiconductors. I'm looking forward to seeing you all at our Investor Day on September 7th in New York, where we plan to update the investment community on our strategy to accelerate the IoT portfolio, provide insights in our investments, and highlight our future growth opportunities. Now let me turn the call over to Dean for a review of our fourth quarter financial results and first quarter outlook.
spk06: Thanks, Michael, and good afternoon to everyone. I'll start with a review of our financial results for the recently completed fiscal year and then provide our current outlook. We completed our fiscal year 2023 with net revenue of $1.36 billion, which was down 22% compared to $1.74 billion in the prior year, largely due to 36% year-over-year decline in our mobile and PC product groups and a 14% decline in our IoT products. Nearly all of our markets were affected by demand and inventory corrections throughout the fiscal year. Despite this revenue decline, we maintained a profitable business with non-GAAP gross margin at 60.1%, 10 basis points higher compared to the prior year, as our mix continued to be dominated by our IoT products. GAAP net income for the recently completed fiscal year was $73.6 million, or $1.83 per diluted share compared to $257.5 million or $6.33 per diluted share in the prior year. Non-GAAP net income for the completed fiscal year was $326.4 million or $8.12 per diluted share compared to $551.2 million or $13.54 per diluted share in the prior year. Revenue for the recently completed June quarter was $227.3 million, above the midpoint of our guidance. Revenue from IoT, PC, and mobile were 58%, 19%, and 23%, respectively. This was largely in line with our prior expectations, with our IoT products ending higher than forecast. Year-over-year consolidated June quarter revenue was down 52% as the June 2023 quarter is now directly compared to our June 2022 peak revenue of $476 million. June quarter IoT product revenue was down 60% year-over-year and down 43% sequentially, reflecting soft demand across consumer and enterprise end markets and continued inventory depletion as previously discussed. In PC, our June quarter revenue was down 21% sequentially and down 48% year over year. We expect the June quarter represents the bottom for the PC market as customer inventories are largely depleted and normalization is likely to begin in the September quarter. A full and sustained recovery will be dependent on corporate enterprise IT spending trends given our higher mix in commercial notebooks. Our June quarter mobile product revenue was up 26% sequentially and down 17% year-over-year, largely in line with our prior expectations. Android smartphone sell-through, though volatile, has improved recently and inventory is returning to normal levels as we see near-term turns orders and occasional customer order escalations. We expect this area to remain volatile on a quarterly basis as the strength in our high-end touch solutions offsets declines at our legacy mobile customer. During the quarter, we had one customer greater than 10% of revenue at approximately 14%. For the June quarter, our GAAP gross margin was 44.5%, which includes $24.5 million of intangible asset amortization, $1 million of share-based compensation costs. June quarter non-GAAP gross margin of 55.7% was below our guidance range mainly due to product mix and some additional inventory write-downs as our forecasts continue to remain weak in some specific products. GAAP operating expenses in the June quarter were $139.2 million, which includes share-based compensation of $29.2 million, intangible asset amortization of $8.5 million, and a vendor settlement accrual of $4 million. June quarter non-GAAP operating expense of $97.5 million was down from the preceding quarter and slightly below our guidance as we continued to maintain vigilant expense control. We had a GAAP tax benefit of 20.9 million for the quarter and non-GAAP tax expense of 4 million. June quarter GAAP net loss was 23.4 million for a GAAP net loss of 59 cents per share. Non-GAAP net income in the June quarter was 19.5 million, a decrease of 74% from the prior quarter, and an 88% decrease from the same quarter one year ago. Non-GAAP EPS per diluted share was 49 cents and was above the midpoint of our guidance range. Now turning to the balance sheet. We ended the quarter and the fiscal year with $934 million of cash, cash equivalents, and short-term investments on hand. This is unchanged from the preceding quarter. cash flow from operations was $94 million. Capital expenditures were $5.2 million and depreciation for the quarter was $7.2 million. Receivables at the end of June were $164 million and days of sales outstanding were 65 days, up from 60 last quarter. Our ending inventory balance was $137 million, down $11 million as we continue to reduce our inventory purchases. Given lower top line sales, the calculated days of inventory on our balance sheet was 122. We bought back approximately 1 million shares in the quarter for an aggregate cost of about $83 million. Our cash balance is at a healthy level even after the recently announced Broadcom transaction with ample flexibility to navigate our capital deployment needs. We continue to prioritize our capital allocation between M&A, share repurchases, and debt management. Now, let me turn to the September quarter outlook. We remain consistent in our view of the near-term outlook and the dynamics in our business. Our focus continues to be on reducing customer and distribution inventories further in the upcoming quarter, as the June quarter reduced inventory levels consistent with our expectations. By market area, inventory levels have returned close to normal levels in our PC and mobile products, as many customers appear to be moving in a positive direction on product orders. In IoT areas, where inventory levels were highest, we are still working through excess channel inventories, but are now seeing signs of meaningful depletion. Within IoT, demand for our consumer-facing applications has begun to stabilize. While enterprise-focused customers, demand continues to be weak. The resulting mix shift is expected to be unfavorable to our gross margin profile. We expect the product mix to return to a more normal profile as recovery begins in early calendar 2024, and margins should have correspondingly improved. Given these end market dynamics and expected channel inventory burn in the September quarter, We anticipate revenue to be in the range of $215 million to $245 million, roughly flat with the prior quarter, as we expect this to mark the lowest trough point and is now behind us. We expect our revenue mix from IoT, PC, and mobile products in the September quarter to be approximately 58%, 22%, and 20%, respectively. We expect GAAP gross margin for the September quarter to be in the range of 43.5% to 47.5%. We expect non-GAAP gross margin in the range of 52% to 55%, a decline from the previous quarter due to the mixed dynamics I highlighted earlier. We expect GAAP operating expenses in the September quarter to be in the range of $139 million to $147 million. which includes intangible amortization, share-based compensation, and restructuring costs. We expect non-GAAP operating expense in the September quarter to be in the range of $97 million to $100 million. In response to the demand environment, we're reallocating investments and deprioritizing certain projects, but ultimately believe a robust pipeline of new products will be critical in shaping our future success Therefore, we plan to maintain roughly 100 million per quarter. The recently announced transaction with Broadcom is not expected to affect our financial outlook for the quarter. Gap net loss per basic share for September quarter is expected to be in the range of 55 cents to 95 cents and non-gap net income per diluted share is anticipated to be in the range of 15 cents to 55 cents per share. on an estimated $39.5 million fully diluted shares. We expect non-GAAP net interest expense to be approximately $7.5 million in the September quarter. And finally, we expect our non-GAAP tax rates to remain unchanged in the range of 16% to 18%. This wraps up our pair of remarks. I'd like to now turn the call over to the operator to start the Q&A section. Operator?
spk01: Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question is from Kevin Cassidy of Rosenblatt Securities.
spk04: Thanks for taking my question. Just a couple questions. First one is, you know, last quarter you thought you're under shipping demand by $75 to $125 million. Do you know what was it for the June quarter? How much under shipping did you do and are you expecting more in the September quarter?
spk06: Yeah, Kevin, you remember that correctly. We still maintain that is still approximately right. In the June quarter, actually landed about in that expectation. And like we said last quarter, and we continue to remain consistent this quarter, we think that range probably continues to persist throughout the calendar 2024. That's probably consistent.
spk04: Okay. Excuse me. And the new agreement with Broadcom, you know, expect it'll be just as successful as the last agreement. But this is IP only. And I guess the elephant in the room is what was the cost or what was the finances behind it?
spk09: Yeah, Kevin, it was $130 million. So we felt like we got a very good price on the deal. And it encompasses a bunch of things as we outlined it. There are a few finished chips that they've done since Our last deal concluded that come to our side for use in our field of use. Um, there's the wifi seven technology that, that we talked about, and then a couple of pieces of Bluetooth technology, as well as extension of the deal. So we feel like, you know, all of those elements together, this is a, obviously Broadcom likes the transaction, but we really liked the transaction. We think it's a, it's a good price for. all the elements that we got as part of this.
spk04: Yeah, I agree with that. That's much lower than I was expecting, $130 million. Congratulations.
spk09: Thanks, Kevin.
spk01: Thank you.
spk00: Please hold for our next question. Our next question comes from Christopher Rowland of Sakina International Group.
spk05: Thanks, guys. So I didn't quite follow everything on the channel inventory side. I wanted to know where you thought they were most acute and where they might have normalized. It sounded like PC and mobile was high, but also you mentioned maybe enterprise, which I thought skewed towards IoT. So if you could put that all together. And then I think you mentioned some module deal on connectivity where someone was scrapping parts. And any commentary there would be great, too. Thanks.
spk09: Yeah, a couple pieces, and I'll have Dean follow. So number one, in terms of inventory, I would say Uh, you know, we still have a couple quarters of burn to go through because of the over shipment problem, but that burn is now skewed to IOT. So we feel a lot better about where PC and mobile inventories are. Uh, we're feeling better about some aspects of IOT, but as you highlighted in the question enterprise, which a company's compass is things like our docking station business, some enterprise telephony. um there's some issues in in set top box we we are still projecting that we're a couple quarters away from burning through all of that inventory so pretty good pc mobile iot a bit of a mixed bag but iot for the most part is where the issue is and thus as dean characterized the the overall drag on gross margin uh okay
spk06: Yeah, so I'll just take the last part of your question, Chris, which was around the scrap at a large customer. So we did enter into a one-time scrap agreement, which is a cost of goods charge to, you know, scrap a bunch of, you know, parts that are specific for their use. So that answers that piece for you.
spk05: Okay. Yep. Sounds good.
spk09: It was a module. I mean, your question sort of led to a module. It was a separate non-module customer. We are burning inventory in our large module customer. That's more of an inventory situation. And then as Dean talked to, the scrap situation is a direct customer.
spk05: Yeah, I see now. Okay. Thank you for that clarification. And then pricing pressure, was that just automotive touch? Was that all of touch when you were talking about pricing pressure? And then pricing pressure, are there other parts of your business where you've seen this, for example, in connectivity with this extra kind of inventory out there? I think everyone on the connectivity side has seen a downtick with over-inventorying. Are you seeing pricing pressures there or any other part of your business? Thanks.
spk09: Yeah, so the comment in the prepared remarks was very specifically pointed at automotive, and we're certainly seeing some pricing pressure in our automotive business, which has actually held up really, really well for us. But these are designs that would be shipping in multiple years. In order to bid and win on those designs, we're seeing quite a bit of price pressure. But to your question, we're certainly seeing some pricing pressure, as you alluded to, on Wi-Fi and a bit on our touch technology. But overall, remember, as we've sort of characterized on previous calls, our IoT business is largely pockets of strength or we're, you know, sole sourced in many instances and we have some pricing power. In areas that are more competitive, like the Wi-Fi, like the touch and mobile, we're definitely seeing some pricing pressure.
spk05: Fantastic. Thank you, Michael.
spk01: Thank you. Please hold for our next question.
spk00: Our next question comes from Nick Doyle of Needham.
spk08: Hey, guys. Thanks for taking my question. For the COGS charge, did you guys quantify the impact to the margins? And do you anticipate any further write-downs for other parts?
spk06: Yeah, Nick, so we didn't quantify. I mean, there's obviously lots of moving pieces. I wouldn't focus so much on what the COGS charge is for the scrap portion. The largest piece of the movement around gross margin, which I think is the thing that you want to just sort of get focused on, is really around the imbalance of the mix of the products, specifically with some of the enterprise-focused customers actually driving that mix, even within IoT, a little bit more unfavorable. So that is probably what I would sort of guide you to.
spk08: I appreciate that. Yeah, I was trying to get a little sense there. When you're talking about the Broadcom deal, there was a line that said you're trying to focus on the broad market part of the roadmap. Can you just expand on what products that is?
spk09: Yeah, I mean, today our product line is very much targeted to high performance. I think we've discussed it in previous calls where For the most part, we're moving video from one device to another, and that requires very high bandwidth. It requires quite high performance. Where we're aiming our roadmap over the next couple of years is a more basic connectivity, simple point-to-point connections, whether that be over Bluetooth, whether that be over Zigbee technology, whether that be over Wi-Fi. There is a kind of a margin-rich and high-tam area there that we have totally not tackled. So our engineering investment right now is very much geared toward retuning our roadmap to go after that broad market. Eventually, we think that there's going to be opportunities for us to bring in our SOCs, our processors, and either through integration or through a bundling type of scenario where you can pull through a lot more content in that broad market area.
spk00: Thank you. Please hold for our next question.
spk01: Our next question comes from Eddie Orabi of TD Cohen. Please go ahead.
spk02: Hey guys, this is Eddie for Krish. Congrats on signing the deal with Samsung. Pretty interesting. It seems the industry has been trending more towards foldable phones, especially in Android. So can you remind us about Synaptic's opportunity there? Like what percentage of mobile revenues go to foldable phones and whether the competitive environment is different there than regular phones. And I have another question, please.
spk09: Yeah, Eddie, I don't know if we actually break out the specific revenue that's attached to foldable. And I don't know if I have it on hand. But what I would say is we're very much on the flexible OLED displays, which are 100% of the foldable market and of the flip market, if you will. So more and more attach is coming into the flexible OLED is becoming a much bigger portion of the market. And that's why I think we're, we're doing unusually well on the Samsung deal in particular, as we mentioned on the, on the, in the prepared remarks, we actually shipped two touch ICs, one for the front panel, and then one is it flips out and opens up into the full panel. We're not in the fold today. It represents an opportunity for us as we look out at the landscape, and we agree that there definitely is a trend line to more of these foldable phones, which play to our strength for sure.
spk02: Got it. Thanks, Michael. And just on the Bluetooth 6 IP, first, just a clarification. Do you have a standalone Bluetooth product today for the Bluetooth 5 and Second, you talked about Bluetooth 6 expanding product line to the enterprise headset market. Are there any other new markets that Wi-Fi 7 and Bluetooth 6 can open for you, like in healthcare, industrial, et cetera?
spk09: Yeah. I mean, your question is a good one. So today, before this particular transaction, we had no standalone Bluetooth offering. We still need to work on the Bluetooth engine to make it truly, truly competitive. We can ship into certain markets today, HIDs, human interface devices. We can ship into remote controls. We can ship into, it opens up a bunch of new markets for us. But to get into industrial and into medical and some of these other things, we are This is where we intend to go. We have now with the Bluetooth 6 technology, we're already much closer to our competitors today than we were before this deal. So we've actually really closed the gap on Bluetooth. We will continue to evolve that, and our intent is to open up some of the markets that you alluded to, the industrial, medical, gaming. There's a lot of things that we think we can do with standalone Bluetooth that today are We do not do.
spk02: Thanks, Michael. And just a quick follow-up. Competitors in this market would be Silicon Lab and Nordic Semi, right?
spk09: Yeah, perfect. Perfect compare, Eddie.
spk02: Got it. Thanks a lot, Michael.
spk01: Thank you. Please hold for our next question. Our next question comes from Gary Mobley of Wells Fargo.
spk07: Hey, guys. Thanks for taking my question. Dean, in your earlier comments, you mentioned that you might shift to actual customer and demand by, I believe you said the fourth calendar quarter of 2024. Did you mean the fourth calendar, fourth quarter of fiscal year 24? Because I think that's what you previously communicated, and I just wanted to confirm What's normal when you actually begin to ship to actual customer and demand? Is that roughly in the ballpark of $325, $330 million in revenue?
spk06: Yeah, Gary, I think you have it right. I think it's yet to be seen exactly what that trajectory looks like and what quarter marks that you'll return to sort of full normal end consumption. We're already starting to see we're getting pretty darn close on the PC side and the mobile side. It looks like a lot of that inventory has sort of now worked through. PC specifically, it looks like that's probably behind us. Mobile is still sort of a little bit volatile, bumping around a bit. IoT, though, is going to take a few more quarters, as you indicate, Gary, and like we talked about last quarter on last quarter's call. So I think what you'll see is inventory burns. right, for the next couple of quarters, somewhere around, you know, the current range. And then you'll start to see as inventory sort of gets depleted, you know, top line start moving back as you approach, you know, true end demand over the subsequent quarters.
spk07: Okay. Thanks, Steve. With respect to gross margin, so your guidance implies that you're going to run about 350 basis points below your long-term view, and I get the mix within the mix headwind in IoT, but is there also a factor playing here in that maybe it's a little bit more difficult to pass along price inflation from your boundary partners, and And in a world where your enterprise IoT business bounces back to its previous level, do you still see 57% as the long-term gross margin target?
spk06: Yeah, and I don't even think it's that necessarily far out. Where we are today, midpoint of the guide, actually I think is the bottom of the gross margin. This incorporates probably the worst amount of mix that we've been confronted with, specifically these enterprise-facing customers, which come with a little bit better gross margin for the company. We will actually move back up toward that long-term rate of 57% gross margin. Really, as we get through this inventory burn and as the mix writes itself, There's actually an interesting chart if you want to take a look at it, Gary, in our supplemental slide posted on the investor website that actually gives the history of sort of how gross margins do in fact track with the product mix of the company. And therefore, I'm not really concerned about gross margins and sort of their return as IoT mix returns.
spk07: Okay. And as far as offsetting Higher boundary quotes, I imagine that's not much of an issue anymore or less of an issue, but maybe you can just talk about that ability to pass along price increases.
spk09: Yeah, I mean, it's lesser, Gary, and I think that sort of coming from our historic 60% run rate to 57% contemplates that. So I agree with what you said. We were running, I think for the year, Dean gave the number of 60%. As we think about long-term, 57 contemplates input prices changing and contemplates a much less ability. We do have pricing power, as I mentioned to a previous questioner, but I think our ability to pass on a significant majority of those increases, those days have gone.
spk01: Thanks, guys. Appreciate it.
spk06: Yep, thanks, Gary.
spk01: Thank you.
spk00: Please hold for our next question. Our next question comes from Martin Yang of Opco.
spk10: Hi, Daphne. Thank you for taking my question. My question is on sign of recovery and the timing for recovery across different sectors. I definitely understand the PC dynamic where it could stay in bottom for a longer time. Do you see mobile recovering from the current bottom or normalized inventory much faster than the other two?
spk09: Yeah, Martin. I mean, I think what we're trying to get people oriented around is Mobile and PC have largely recovered. I think in PC we see inventory levels now close to normal. The complication is that the demand, particularly from enterprise, has not yet picked up. We forecasted picking up in the fourth quarter and in the early next year, but it has not yet picked up. So although inventory is in pretty good shape, I think demand still remains a question, and that's largely hinging on enterprise spending. In mobile, we had a good quarter this quarter. I think we've got a tailwind with Samsung. We expect to do some additional business with Samsung in the ensuing quarters. As I think both Dean and I characterized, the one headwind we're experiencing in mobile is not necessarily to do with inventory or to do with end demand, It's to do with the roll-off of our display driver with our large customer. So that's, as I said, it's now, you know, an increasingly immaterial part of our business, but it's still there. It's still a piece of the business. So we have work to do to offset that as it asymptotes to zero, as I said in my remarks.
spk10: How material is the legacy DDIC business to mobile customers? if you measured it on a last-month basis.
spk06: It's a single-digit percentage, Martin.
spk10: Thank you.
spk01: Thank you. I'm showing no further questions at this time. I would now like to turn the conference back to Michael for closing remarks.
spk09: Yeah, I'd like to thank all of you for joining us today, and we certainly look forward to speaking to you at our upcoming investor conferences during the quarter, and more importantly, our investor day in September. Thank you.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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