Silicon Laboratories Inc. (SLAB) Q4 2011 Earnings Report, Transcript and Summary

Good morning. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Laboratories Fourth Quarter Earnings Conference Call. [Operator Instructions] I will now turn the conference over to Shannon Pleasant.

Thank you, and good morning. This is Shannon Pleasant, Vice President of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the company's financial results. This call is being webcast and will be archived for 2 weeks. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the Investor Page of our website at www.silabs.com. I'm joined today by Necip Sayiner, President and Chief Executive Officer; and Paul Walsh, Chief Financial Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following the presentation. Our comments and presentation today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time. By discussing our current perception of our market and the future performance of Silicon Laboratories and our products with you today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial conditions. We encourage you to review our SEC filings, including the form 10-K that we anticipate will be filed in the next 2 weeks, that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also the non-GAAP financial measurements, which are discussed today, are not intended to replace the presentation of Silicon Laboratories' GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations. I would now like to turn the call over to Silicon Laboratories' Chief Financial Officer, Paul Walsh.

Good morning, everyone. Fourth quarter revenue proved to be a peak for 2011 and a strong ending for the year. Revenue of $126.7 million represented a 6.4% sequential increase and a 13.2% year-over-year increase. Business trends were robust throughout the quarter, with new product cycles driving the upside to our guidance. The top line outperformance fell through to the bottom line, resulting in impressive non-GAAP earnings per share of $0.49, well ahead of our guidance. First, I'd like to talk about GAAP results, which included approximately $8.9 million in non-cash stock compensation charges and $1.3 million in one-time charges for acquisition-related intangibles and a repurposing of a design center into an applications and sales office. A brief side note on stock compensation. It represented just 7% of revenue in 2011, down from a peak of 10% just a few years ago. Total stock dilution, which has been offset by our share repurchase program, was well within our target of 1% to 2%. We've made good on our promise to reduce stock comp as a percent of sales and anticipate further progress in 2012. For the fourth quarter, GAAP gross margin was 60.9%. R&D investment increased to $34.7 million, and SG&A was flat at $27.3 million. GAAP operating income of 12% was a 220 basis point improvement over the same period a year ago. The GAAP tax rate was 18.8%, resulting in fully diluted GAAP earnings of $0.29, a 12% sequential increase and a 4% increase year-on-year. Turning to our non-GAAP results. All of our 3 businesses performed better than anticipated, with Access flat, Broadcast up slightly and Broad-based up double-digits. Gross margin met our expectations at 61.2%. Mix will continue to be the primary driver behind gross margin fluctuations around our target model of 62% or better, with video causing downward pressure and Broad-based, notably timing, providing upward pressure. Operating expenses came in as expected at $52 million. R&D increased to $29.6 million due primarily to increased tape-out activity, including 2 at 55 nanometers. SG&A remained flat at $22.5 million. SG&A continues to remain at levels not seen since the first quarter of 2010. In Q1, we're expecting the typical seasonal increases in payroll, taxes and salaries, which will result in about a 4% sequential increase in operating expenses. Operating income improved to 20.1% of revenue, and net income improved to 16.9% of revenue. The Q4 tax rate was 17.8%. On the topic of taxes, the federal R&D tax credit expired on December 31. Until this credit is reinstated, we expect our tax rate to increase. The non-GAAP tax rate will be about 18% beginning in Q1, which translates to a $0.02 EPS impact for the quarter. Solid operational results afforded us significant leverage on the bottom line. The resulting earnings per share of $0.49 represented an 11.4% sequential increase, well above our guidance. Diluted share count ended the year at 43.4 million shares, a decrease of more than 2 million shares from a year ago. I'm especially pleased with the management of our inventory and the help of our balance sheet throughout 2011. In Q4, accounts receivable decreased to $55.4 million or 39 days sales outstanding. We continue to have no known collection or bad debt problems. Inventory was well managed again, even with various new product ramps and limited end-market visibility. We ended the quarter down sequentially at $34.8 million or 5.7 turns. This is a meaningful improvement from 4.8 turns in Q3. Channel inventory ended at a lean 43 days, while the balance declined about 12%. Once again, we generated strong operation cash flow and ended 2011 with $325 million. This is down about $60 million from 2010 but inclusive of a $110 million in share repurchases and an acquisition executed over the course of the year. We have an open share repurchase authorization of $50 million through April and plan to continue to be opportunistic in the market during that time frame. So in summary, we ended 2011 on a strong note, with good revenue momentum propelling even stronger earnings performance by the fourth quarter. Operating leverage remains a key component of our strategy as we achieve higher revenue levels and control expenses to maximize the bottom line performance. Necip?

Thanks, Paul. 2011 represented an important transition for Silicon Labs. While admitted the lacking in terms of revenue growth, we did achieve a number of key milestones. We put the secular decline in our handset FM and set up our modem products behind us, marking the final chapter of our multiyear transformation into a well-diversified growth business. We are no longer a company driven by any one product, technology or end market. We have established market share at gross communications, consumer and industrial markets. We are investing to expand these market share positions, increase our content in the systems we are designed into and gain a foothold in new markets. So despite industry uncertainty, we have a lot to look forward to in 2012. We had both the diversity to weather macro weakness and a product cycle to get us back into a mode of outperforming our peers. Normally, at this time in the year, I like to give annual growth targets for our product line, but visibility remains limited. Customer sentiment is still very cautious, and lead times are relatively short. So while I'm confident that we can do significantly better than the 2% to 3% forecasted for our industry in 2012, the uncertainty around the magnitude and direction of the economic slowdown makes it difficult to provide absolute ranges. I'll focus our forward-looking comments on Q1, and where I can, I will offer color on full-year trends. Business continued to improve throughout Q4, with upside driven by new product ramps in video and touch controllers as well as better-than-anticipated demand for our SLIC and many of our Broad-based products. The Access business ended the year at 23% of revenue. Modem revenue from set-top boxes was about 6% of total revenue as we exited the year and is likely to decline at a measured pace through 2012. ProSLICs, on the other hand, provided modest upside in Q4 due to increased investments in China in passive optical networks. As a result, the Access business was about flat for the fourth quarter, better than expected. We think the robustness in ProSLIC will continue into Q1, potentially offsetting typical seasonality. Similar to what we've seen in 2011, I expect the Access business to remain steady at the current levels throughout 2012, with SLIC growth compensating for modem decline. Broadcast products represented 34% of revenue in 2011 and posted a mid-single digit growth rate for the year despite headwinds from FM tuners sold into handsets. Growth in AM/FM tuners and dominance in silicon TV tuners were behind the solid yearend results. AM/FM products were up nearly 20% in 2011, achieving another record in terms of revenue. Audio represented about 20% of our total revenue, and non-handset radio revenue now makes up about 75% of the audio total. We've continue to diversify our portfolio to address more applications while effectively managing increased competition in Asia through licensing agreements. Most exciting is the success we've had penetrating Tier 1 automotive accounts. We have a full portfolio of low- to high-end automotive radio offerings, including the new high-performance HD-capable radio we launched last quarter. Led by our radio design wins, we are expecting automotive to finally become a meaningful piece of the company revenue starting mid 2012 as production of 2013 car models begins to ramp. This higher-margin, long-life-cycle business is a strategic addition to our portfolio and will help us continue to grow the audio business nicely over the long term. Turning to video, we had a $60 million target for 2011, and I'm pleased to report that with the upside in Q4, video revenue totaled 13% of revenue for the year, exceeding our goal. We're expecting video to remain steady in Q1 as new customer programs offset seasonal softness in TVs. We expect to resume growth in Q2 as those models fully ramp into production. As you know, we're not relying on TV market growth to drive this business. We're expecting penetration of silicon tuners into TVs to rise to about 50% in 2012. And based on the design wins we've already secured, we think we can increase our video share from about 20% of all TVs in 2011 to at least 30% in 2012. Competitively, we're enjoying a solid lead and move forward from a position of strength. Our third generation of devices featuring the industry's broadest selection of tuners, covering every flavor from hybrid to digital-only devices, gained the lion's share of 2012 design wins. Customers with low penetration of silicon tuners in 2011 are coming on strong this year. We are also sampling our fourth-generation tuners now for 2013 designs. These new products offer further optimization in cost and performance. And we are focusing our energy on cementing our position at Tier 1 customers. From an R&D standpoint, while our competitors play catch-up, we're further segmenting our video product portfolio to enable us to penetrate the second-tier TV makers and begin our attack on non-TV applications. So while video remains a very competitive market, we benefit from experience, track record and continue the investments to maintain our leadership position, and we'll do so profitably. In total, we're expecting Broadcast will be down in Q1, due mostly to seasonal declines in audio. Our Broad-based business was up nearly 20% in 2011 and represented 42% of revenue. To my earlier point about the diversification of the business, our Broad-based products include mixed-signal MCUs, timing devices, human interface controllers and sensors, wireless receivers and isolation products. This group was only 20% of revenue back in 2007 and 35% of revenue in 2010. I view the strong growth as a direct corollary to our success in diversification. In the fourth quarter, Broad-based revenue was up more than 10% sequentially to a new record, with upside driven by the aggressive ramp of our touch controller at Samsung. Handsets with our touch sensors are now shipping into the EU, China, India and Australia. Human interface products exceeded 5% of our revenue in Q4, making it meaningful but still very small relative to our incumbent peers. We were successful in securing additional design wins at Samsung during the quarter. In 2012, we expect Samsung will dominate our touch revenue, and we are focused on winning new models in the coming months to expand our business there while working to penetrate additional handset makers. Our MCU business held about flat in the fourth quarter, a good result given continued end market weakness. New product development activity remain strong. We introduced our latest generation of 8-bit devices, a family of very-low-power MCUs with integrated wireless capability. The new MCUs extend our lead in the low-power segment, offering 40% less system current draw and 65% longer battery life than the competition. Designing low-power wireless MCUs is challenging for our non-mixed-signal MCU competitors, and we have seen major design win traction and applications as a result. Isolation and wireless products were also behind the strong sequential growth of the Broad-based business in Q4. Program ramps at large customers were contributors to the strength in isolation, while green energy remains the driver behind the wireless products. As the "Internet of Things" moves from concept to reality, our embedded products, both current and on the roadmap, uniquely position us to offer a solution that often encompasses the most critical functions of customer systems. Lifestyle electronics in particular, like the Nest Labs' Thermostat that created so much buzz at CES, are a major target of our sales and marketing efforts as we leverage low-power MCUs, wireless transceivers, isolators and sensors to win sockets. The final leg of the Broad-based product group is timing. Timing represented about 14% of revenue in 2011 and was up more than 30% versus 2010, a terrific result. The business slowed in the fourth quarter and was down sequentially as telecom customers continue to revise down their forecasts. Our oscillator products, which are slightly less levered to telecom than our clocks, achieved record revenue in Q4, but the pressure on telecom equipment impacted the overall rate of growth in this product line. However, we see this as a short-term issue. The most recent report suggests telecom operators are moving aggressively to 100G deployment, which feeds right into the strength of our high-end timing devices. Operators are planning to deploy higher-speed optical transport equipment to lower the cost per bit while improving performance and expanding capacity. We expect the combination of a telecom snapback and continued penetration into non-telecom customers to result in another solid growth year for timing in 2012. In total, we're expecting the Broad-based products to be up in Q1. For the year, we expect this business to improve sequentially each quarter. This expectation is driven by the 40% year-over-year growth in design wins in 2011 as well as the inventory replenishment cycle we're expecting later in the year. Looking ahead to Q1, we're currently expecting revenue to be in the range of $120 million to $125 million. As I mentioned, we're anticipating that Broadcast will be down seasonally, Access will be about flat and Broad-based will be up. We expect gross margin to sustain the current range. We anticipate operating expenses will be up seasonally by about 4%. On a GAAP basis, we are projecting earnings of $0.20 to $0.24. On a non-GAAP basis, excluding stock compensation expense, we expect $0.38 to $0.42. We'd now like to take your questions. Ms. Vice President?

Thank you, Necip. We'll now open the call for the question-and-answer session. So that we can accommodate questions from as many people as possible before the market opens, please limit your questions to one with one follow-up. Operator, please review the question-and-answer instructions for our call participants.

[Operator Instructions] Your first question comes from the line of Anil Doradla of William Blair. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Couple of questions. Necip, clearly the TV tuners and the human interface are the star products, and we expect these to ramp over the next several quarters, but given that the competitive nature of these, how should we be looking at the gross margins of both these 2 end products combined? There is an element where you guys improved your yields on that and then there's market pressure. If you could give some color on that, that would be great.

Sure. I think we have indicated in the past that the touch controller product we are ramping is not an outlier in terms of gross margin, so we do not anticipate that product line to have an impact on the gross margin due to product mix, and we will certainly drive an aggressive cost reduction roadmap, like we do for all our verticals. On the video tuner, as you mentioned, the new-generation tuner does carry a better product margin, and we are ramping it strongly this quarter. So by the time we get to the end of this quarter, it should reach steady-state margins from a yield and test time point of view. We have finalized our price negotiations with our customers for 2012, and the expectation that we had this product will carry slightly better product margins held through. Anil K. Doradla - William Blair & Company L.L.C., Research Division: So from a pricing point of view, your 2012 pricing is fixed, is that what you're saying, on this product?

Yes. Yes, it is. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Okay. And you said, I think, the human interface was at 5% of Q4. Why should we not be thinking that you'll exit 2012 with 10%-plus sales in human interface?

So the Galaxy Y platform that we started in ramping in Q4 ramped very strongly for us and is continuing its ascent into Q1, coupled with seasonal effects. I also just mentioned that we have won a couple more follow-on programs at Samsung. These will ramp, one of them, late 1Q and the other in the second quarter. So I think at this juncture, we have pretty good visibility into certainly the first half. This product appears to have very short design-in cycles. So we, for the next 4 to 6 months, be competing for second half models, which can change the outcome for the year. So I think what we'd like and are [ph] committed to do is to model our revenues based on what we've won, and come midyear, we'll give you a tally of all the other wins we've accumulated, both at Samsung and other customers, and this will have some constructive effect on the second half revenues.

Your next question comes from the line of Craig Ellis of Caris & Company. Craig A. Ellis - Caris & Company, Inc., Research Division: Necip, you mentioned in the prepared remarks that you expect telecommunication spending to step back. When do you expect to start seeing that? And how much does that contribute to your confidence and timing growth this year versus just propagation of solutions into a broad array of platforms in your customer base?

So Craig, in 2011, even if you exclude the contribution from the SpectraLinear acquisition, the timing business grew very nicely in spite of telecom weakness that lasted pretty much most of the year. So those improvements came due to market share gains, and I expect those gains to continue into 2012 regardless of a snapback in telecom. I think that snapback is overdue. I think there are a lot of dynamics that would require a higher level of investment and telecom spend. When this will turn on, I don't know. But in the past when we've had durations like this, the snapback tended to be rather sharp. So we're expecting this to occur sometime in the year but don't have good visibility as to when that might occur. Craig A. Ellis - Caris & Company, Inc., Research Division: That's helpful. And then a follow-up question on the human interface. A company at CES announced a capability to integrate some capacitive touch processing in their application processor. Do you see that as a competitive threat or as a point of pricing leverage by OEMs, as some of the functionality that would typically be done in a more discreet solution can be moved over into an APU, like we've seen previously with the way Apple and with some of their capacitive touch [ph]?

I must admit I don't know enough about that product to give a definitive answer. I think one of our competitors made a remark that this may only have a portion of the touch controller functionality, something like a wake-up touch rather than the full functionality. But I don't know firsthand to verify that. But either way, I think we have already strong incumbent competitors in the space that we are working hard to gain share from. So before I start worrying about new entrants in that integration threat, our first concern is really to take share away from the 2 or 3 strong incumbents. And I think that's where our focus is going to be in all of 2012. Craig A. Ellis - Caris & Company, Inc., Research Division: And regarding your comments on kind of the broad array of design win attempts, are you finding that you're moving up in their product line from the Y series, or are those additional design wins in other Y series products?

These are additional wins in low-end smartphone platforms for Samsung.

Your next question comes from the line of Srini Pajjuri of CLSA Securities.

Necip, first, how big is whatever you consider the legacy business? And also, where do you see that going by the end of this year?

So both modems, set-top box modems, and FM tuners into handsets were approximately 5% of total revenue each. I think we'll see a measured decline in set-top box modems throughout the year. That decline, as I mentioned, will be made up by improvement in SLIC. So Access overall, I think, is going to remain steady. On the handset FM side of things, I would've said a quarter or 2 ago that this revenue will likely go to 0 by the end of this year. Our view now has changed, and we see that revenue to take a step down in Q1 seasonally and stay relatively flat to slightly down for the remainder of the year.

Okay, great. And on -- quickly on touch. You said you're winning in the low end. Can you help us understand the competitive landscape in the low end and also why do you think you're winning and who in particular are you replacing there?

Well, I think, similar to other products they've introduced at Samsung, this particular product carries with it a high level of performance at a very attractive cost basis. We believe, based on the information we have about the competitive landscape, our touch controllers has the lowest size by a significant margin, so we operate from a very good cost basis, having designed this with a different mentality than some of our other competitors coming strictly from an MCU background. And this is an area that continues to evolve. We'll continue to drive the roadmap, both in terms of cost reduction and performance enhancement. So the customer sees the value performance for the cost that we can offer the product. And that's being a classic Silicon Lab value proposition.

Okay, great. And then finally, maybe for Paul. Paul, as the DTV business grows, I guess in unit terms, you're expecting almost 50% growth this year. How should we think about gross margins? I guess my question is can they continue to stay about 50% levels as this -- as you see this growth?

Sure, Srini. Well, this is how I would characterize gross margin both in the near term and the long term. In the near term, it's going to be mostly influenced by product mix between video and growth in Broad-based. And thinking as we progress towards the long term -- well, the medium to long term, the Broad-based business will certainly outpace the growth of any other business. And that will put some -- provide some upward pressure to gross margin. So for the guidance we gave for this quarter here, this basically assumes a relative mix that's similar to what we saw in Q4.

Your next question comes from the line of Terence Whalen of Citi.

Hi, this is Bin speaking for Terence. I have a quick follow-up on the video gross margin. Now you're talking about third generation, fourth generation. Are we expecting the similar margins compared to the second generation? When should we expect the video margin could support average Broadcast margin?

This is Paul. With each generation of TV tuner [ph] we've have made -- we have made progress in gross margin, as we've discussed numerous times. But what we've also said is by the nature of this, of the end market, that this product is not -- will not be -- will not achieve corporate gross margin on a long-term basis.

Shall we expect it to support not corporate average, but upon the Broadcast average?

What we've described in the past is that we've generally tried to avoid giving specific product line gross margin or even business unit gross margin percentages. We've typically described what our outliers are and what those have -- what the impact of those have on the corporate gross margin. So we've spent a lot of time talking about video, and we've spent time talking about the impact that timing has. And those are really the 2 outliers. I really regret I'll refrain from getting into specifics about the Broadcast gross margin average.

Sure, I understood. My follow-up is regarding to the timing. Timing is, by far, [ph] about a year and we expect continued growth. So the question is for Necip. Is that because -- is that driven by increase in content or driven by share gain?

It is driven by share gains. I alluded to significant increase in our design win count in 2011 over 2010 to the tune of about 40%. Timing certainly contributed to that performance, and that is consistent -- at least consistent with prior year performances in terms of design win number increase. So there's a continued increase in market share with both existing product. And as we bring new product to the market, we are also able to win additional sockets in the systems that we've been serving at these customers. So there's some of proliferation, some of content increase, but it all ends up being share gains. So any improvement in telecom spend in 2012, obviously, will positively modulate that growth rate.

Your next question comes from the line of Tore Svanberg of Stifel, Nicolaus. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: First question, could you talk a little bit about the linearity of the quarter, both in terms of bookings and billings, please?

Sure. As I alluded to, Tore, the business improved throughout the quarter. I would say the shipments were relatively linear, and that's a little surprising, given December is usually weaker, but not in 2011. We had very good turns business with relatively short lead times. The bookings also have improved measurably throughout Q4 and into January. The bookings in December were measurably better than November, and in January, 3 weeks, so far, the bookings are stronger yet. So things are certainly headed in the right direction. Our book-to-bill at this point is -- was right around 1. So we've seen good improvement in order trends from the customers. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: That's very helpful. And as a follow-up, the timing markets are getting pretty interesting in the sense that there's a lot of players that are viewing that area, several different -- some of [ph] the companies. And from your perspective, I know you've made a lot of acquisitions there. Do you feel like you have all the IP and all the blocks there now? Or are there still other things that you can add to the portfolio?

I think from a technology and a product portfolio point of view, we are in good shape following the 2 acquisitions we've made. The technology acquisition with MEMS resulting in our first commercial product that we are starting to sample relatively soon. So the commercialization of the first product with MEMS-on-CMOS is right around the corner, so we're excited about that. We have also far more developments in the R&D pipeline for timing than we've ever had. So those new products will come to market, some using the MEMS technology, some just building on the technology that we've had, some combining the IP we acquired from SpectraLinear with ours are all going to add to the portfolio. So I think in a year's time, we'll have a far more comprehensive portfolio in timing than we do today. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Very good. Just one very quick last one. When you talk about video, you said you'll be attacking some non-TV markets. I assume that's going to be set-top box? When should we start to see some revenue from that area?

Well, that was an R&D statement, so we are directing some of our R&D dollars to be able to get a share in those markets. So there won't be any revenue in 2012, Tore.

Your next question comes from the line of Alex Gauna of JMP Securities.

Wanted to ask quickly on the ProSLIC side, you mentioned a tailwind there, particularly in China. Help us understand the magnitude of that opportunity, your confidence in it, especially in light of some peers that are talking about diminished China demand. Have you seen any wrinkles there? And then lastly, there's been some M&A in that space, and I'm wondering if you're seeing any signs of being able to take advantage of some of the dislocations from that merger?

Yes, I can give you some color. We have seen a modest upside in Q4. We actually left the quarter with some delinquencies the customer requests that we are supporting this quarter. That strength in bookings continues, so we will see an increase in our SLIC revenues in Q1 for sure, and I think we have visibility for the second quarter as well. So we have won some significant programs with some of the customers in China that we have supported historically. And I think this is an opportunity for all the suppliers into this market, but we might have won the lion's share of that growth. That's perhaps why you're seeing it in our results more than others. But we have pretty good confidence, pretty good visibility into this opportunity, and we feel good about it.

Then a follow-up to the video tuner side. As you progress, obviously, you have a good roadmap from a unit growth perspective. What about tangential or integration opportunities, the functionality on the DMOD side, and then maybe on the digital-only side, especially with the tuner count proliferation we're seeing in so many devices, is there an opportunity there for you?

Yes, there is. Today we are able to offer a wide area of tuners, from digital-only tuners to hybrid tuners, with and without analog DMOD capability. So depending on the partitioning decisions that our customers make, we are able to serve their needs with ping-compatible and firmware-compatible tuner devices that the customers like that flexibility. So there is certainly opportunity, and we have been winning the secondary tuner sockets along with the primary tuner sockets as our customers. With respect to increasing content, we do have a number of demodulators, and there's 1 or 2 more on the way that we can attach to our tuners. In some cases, that could be in an integrated form. That integrated form seems to be getting more traction in set-top boxes than in TVs today, but we have the IP and the product to offer. So there's plenty of opportunity, I think, to increase our content there.

Your next question comes from the line of Craig Berger of FBR Capital Markets. Craig Berger - FBR Capital Markets & Co., Research Division: Can you help us understand in MCU, sort of your growth path forward there? Is it new product families? And also are you addressing the 32-bit market or playing only in the 8-bit?

Yes, I'll throw in some color there, Craig. So to start with, in 4Q, the MCU revenue was stable, just about flat, and I think compared to our peers, that's a very good outcome. If you look under the hood in the MCU product line, you'll see a number of families achieving record revenue in 4Q. Our small-footprint MCUs, our low-power MCUs, our wireless MCUs all have had record revenues in Q4, in spite of a difficult demand environment. And so I think this is telling in that those product groups will drive our growth in MCU for some time to come. And yes, we are investing in 32-bit. As a matter of fact, we have been sampling our first-generation product to a number of alpha customers for the last several months. And stay tuned for an official launch in not-too-distant future. Craig Berger - FBR Capital Markets & Co., Research Division: Great. And then just as a follow-up on that, can you help us understand on operating expense spending for the year kind of what the plan is there and kind of what the high and low thresholds might be as we move through the year?

Sure, Craig. This is Paul. As we noted, in Q1, we'll see our typical seasonal uptick, which we highlighted to be about 4% sequentially. As the year progresses, things will largely moderate throughout the year, and the major fluctuations that you would see throughout the year will be driven either through variable compensation changes, depending on the performance of the business, or modulations in tape-outs. Those would be the 2 primary drivers. At this time, until we surpass record revenue levels, we're not anticipating any significant or fundamental changes in investment.

Your next question comes from the line of Vernon Essi of Needham & Company. Vernon P. Essi - Needham & Company, LLC, Research Division: Necip, I was wondering if you could revisit, maybe outline a little bit the comments you made about the automotive market. Just give us some perspective on sort of how you're tackling, I guess, that from a sales channel perspective and maybe potentially what your market share might look like going into 2013 and how that's going to grow?

Okay. Currently, our automotive revenue is in the low single-digits as percent of our total revenue. And we have been going after this market for a number of years. As you well know, the gestation period in this segment is several years long, particularly with our audio products. As the leader of the pack, we have seen very good traction with those products going back to 2009 and '10 timeframe. So some of the design wins that we have won back then are now coming to fruition this year with 2013 car models, and we're engaged with some of the -- several of the leading car radio makers in all 3 geographies. And I do expect that the automotive audio revenue will show a nice step-up starting in the second half, but we also sell our isolators and MCUs and wireless devices into automotive. So all put together, we're probably looking at a mid-single-digit type of contribution of our total revenues in automotive exiting this year, and that will certainly increase based on the visibility that we have into the following 3 years. Vernon P. Essi - Needham & Company, LLC, Research Division: Okay. So it's fair to say that you've seen somewhat of an inflection, I suppose, on design wins in 2012 production models -- or 2013, I guess, production models?

Yes, yes. Exactly.

Vernon, this is Paul. I would like to add on to that. This -- automotive is a great example of one of these Broad-based businesses that we've been investing in for a number of years. And what's attractive to it certainly is probably somewhat obvious, in that it'll have a real long life cycle for us and really prove to be very profitable from a gross margin standpoint. Vernon P. Essi - Needham & Company, LLC, Research Division: Okay. And just as my follow-on, small point here, but, Necip, earlier in your prepared comments I think or somewhere along the line, you had talked about an inventory replenishment at some point in 2012. I didn't know if you were referring to any timeframe around that or if you could just give us some color. We're all trying to find out sort of what the broader end market looks like from a demand perspective.

Sure. I'll attempt to provide my perspective on this. I think there's plenty of evidence, and I've told over otherwise [ph], that for the last 6 months or so, the customers have been reducing their inventory levels, becoming more cautious for the overall end-user demand. And we see that in the level of inventory that they carry now that are very lean, we see that looking at our distributors in customer inventories, and I think you'll hear the same things from our peers, larger peers who serve more number of customers than we do. I think the phase we are in now, and this is a little bit of conjecturing on my part, is a phase where the customers are neither reducing nor replenishing their inventories. And I don't think they can afford to reduce their inventories any further, and we see that from their ordering patterns where they attempt to expedite orders and short lead times. So ultimately, this is going to lead to the next phase of replenishing, the customers becoming a little more comfortable with their inventory levels and start investing in their inventories. Whether that will happen in the next 90 days, in the second quarter, midyear, I don't know. But this is invariably going to be the next phase.

Your next question comes from the line of Sujee De Silva of ThinkEquity.

So the Samsung wins that are follow-ups to the Y, can you talk about whether those are expected to be higher volumes, similar volumes or lower volume to the Y program?

This is our lower-volume follow-on derivative programs, if you will.

Okay. And do you expect to have more than 2 or 3 additional customers exiting '12 versus Samsung? Is that kind of the thinking for the touch products?

Well, beyond working hard to expand our footprint at Samsung, we are also engaged with a number of other customers. I would say that we are making good progress with some emerging Asian smartphone OEMs, but I don't have any design wins to report just yet.

Great. And then on digital television, it seems like you're having faster than the typical iterations on the products and revs, third and fourth generations. Could you explain what's behind the cadence of that?

So the TVs, for the benefit of everyone on the call, have an annual model year design cycle. So the decisions are made on an annual basis, and they stop ramping in November, December, January timeframe for the new model year. So you need to have the product ready significantly ahead of that time frame for them to carry their evaluation and so forth. So we are on a more or less an annual cycle in terms of our product, and we've been able to keep up with that. Occasionally, there are some refreshes that take place in the middle of the year, but in the grand scheme of things, these are relatively small. And we've benefited from those refreshes occasionally, but it does follow an annual cycle in general. And this is what we intend to keep up with.

Last question. You guys talked about a target range of 62% to 65% historically for gross margins, and now I think you said above 62% is the long-term target. Is that kind of change in language, is that how we should be thinking about? Or is the mid-60s still an achievable level?

Well, I think what -- earlier in the call, I had mentioned that the way for us to view gross margin in the near term is really -- is a function of product mix in the near term. So it'll hover around based on whether video or Broad-based gross outpaces the other one. I think long term, as the Broad-based business becomes even a larger portion of the company, that will provide a significant upward pressure to get us back into the range of 62% to 65%.

Your final question comes from the line of Sandy Harrison of Wunderlich Securities.

Just a couple of quick questions. As far as -- just for clarity for the -- Necip, you've said that the booking or the book-to-bill so far in the quarter is looking somewhere around close to 1 for January, and you've talked a little bit about seeing "snapback" in the comm space. Without maybe getting too specific, as you look into your bookings for Q1, is comm part of that, and is that giving you some level of comfort, the seeing a snapback, or is it a Broad-based bookings trend that you're talking about?

Okay. I should clarify. The -- when I talk about book-to-bill, I look at the past 13 weeks. So it's a 13-week moving average that I quote as being close to 1. So the bookings in January probably -- well, certainly stronger than that average. So things are moving in the right direction. I didn't mean to say that there is actually a snapback taking place in telecom. We're actually not factoring any of that in certainly in 1Q. It is within our expectations for the year, but in our guidance for 1Q, we have made no assumptions of a telecom snapback, neither for any type of inventory replenishment to take place.

Great. And then just another one on the products that you talked about in your prepared remarks, your low-power wireless, and you talked a little bit about the "Internet of Things" in your participation. Could you elaborate a little bit more on that? I mean, are you participating in a sea [ph] movement or narrow-field [ph] communications? And on your "Internet of Things", how do you all participate in that? Are you the link between the things and getting online? Just if you could fill in some gaps there, sounds like an interesting market.

Yes. Thanks for asking the question, because clearly, things like video tuners and HI are grabbing the headlines. But some of our emerging product lines in our embedded mixed-signal business, like wireless and isolators, have been doing quite well for us, very good, very strong sequential growth in Q4. And we're looking at a very strong backlog going into Q1 in these product lines also. Isolation in general is, in addition to serving the traditional plasma TV space, is also serving solar and industrial. And on the wireless side, which is the crux of your question, this is being driven by both green energy and lifestyle electronics and home security applications. With respect to "Internet of Things" in particular, if you think about the nodes, you need a sensor. You need some smarts in MCU, and you need a capability to transmit that information in a low-power fashion to a center in the home, so a wireless capability. And we have all of these pieces. We have the wireless capability, we have MCU, we have the sensor capability that is consistent with CMOS. So that lends itself to an integrated solution, a low-power integrated solution. And this is what our vision is, being able to bring all these technologies in a single product.

I will now turn the conference back over to Ms. Pleasant for any closing remarks.

Thank you very much for joining us this morning. This now concludes today's call.

Thank you again for participating in today's conference call. You may now disconnect.