Good afternoon, my name is Ethan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Quarter 2 FY '13 Earnings Release Conference Call. [Operator Instructions] Thank you. Linda Brewton, Senior Manager of Investor Relations, you may begin your conference.

Great. Thank you, Ethan. Welcome to Semtech's Fiscal Year 2013 Second Quarter Conference Call. I'm Linda Brewton, Senior Manager of Investor Relations, and speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer; and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results for the quarter ended July 29, 2012, was issued after the market closed today and is available on our website at www.semtech.com. Today's call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements. For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor statement included in today's press release, as well as the Other Risk Factors section of our most recent periodic reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only. Semtech undertakes no obligation to update the information in this call should factors or circumstances change. During the call, we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. A discussion of why the management team believes -- non-GAAP information to be useful, along with detailed reconciliations between GAAP and non-GAAP results, are included in today's press release. I would like to mention that Semtech will be presenting at the Citi 2012 Technology Conference in New York City on Tuesday, September 4 at 3:00 p.m. Eastern. A link to the webcast will be available under the Events section of our Investor Relations Web page. With that, I will now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu.

Thank you, Linda. Good afternoon, everyone. Our second quarter of fiscal year 2013 was a record quarter for Semtech, with revenue growing 29% sequentially to a record of $150.7 million and up 16% from the same quarter last year. Our Q2 results included a full quarter of general revenue. Excluding the $35 million generated by Gennum, our organic business grew 10% from Q1. In Q2, sales into Asia represented 69% of revenue; North America represented 18%; and Europe represented 13% of total revenue. Direct sales represented approximately 59% of total revenues, while distribution led up 41%. Book-to-bill for the quarter was less than 1. Bookings were strong in the first half of Q2. We think in the second half of the quarter has been strong so far in the -- in Q3. Top bookings accounted for approximately 40% of shipments during the quarter. Gross margin on a GAAP basis for Q2 was 49.5%, a 210 basis point increase from the 47.4% in Q1. The increase was attributable to a full quarter of generally high gross margin revenue, somewhat offset by a $17.7 million expense representing the amortization of the fair value adjustment for inventory acquired from Gennum. For Q3 and Q4, we estimate the amount of this adjustment would be $4.4 million per quarter as a result of the lower fair value inventory adjustment. We expect our Q3 GAAP gross margin to increase from Q2 by 810 to 880 basis points. Operating expenses on a GAAP basis were $71.8 million, down 4% from the prior quarter. This decrease was attributable primarily to lower transaction and integration expense as compared to the prior quarter, which more than offset the additional operating expense in Q [ph] from having Gennum on board for a full quarter. In Q3, we expect our operating expenses…

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q2 fiscal year 2013 performance by end market and by product group and then provide our outlook for Q3 of fiscal year 2013. In Q2 of fiscal year 2013, we achieved record net revenues of $150.7 million, an increase of 29% from Q1 of fiscal year 2013 and an increase of approximately 16% from Q2 of fiscal year 2012. And non-GAAP gross margin was a record 61.2% and our non-GAAP diluted earnings per share was $0.41 per share. In Q2, all our end markets grew sequentially, both organically and with the inclusion of Gennum. Including Gennum, our revenue by end market was as follows: Communications represented approximately 35% of total revenues; high-end consumer represented 26% of total revenues. Approximately 16% of this revenue was attributable to handheld devices, and approximately 10% was attributable to other consumer systems. Revenue from the industrial end market represented 22% of revenues; and revenue from the enterprise computing end market represented 17% of revenues. Semtech's business continues to be extremely well-balanced, as 43% of our business now comes from the high-end consumer and enterprise computing sectors, and 57% of our business comes from the communications and industrial sectors. Now let me discuss the performance of each of our product groups. In Q2, our protection business grew 2% sequentially and represented 33% of Semtech revenues. While all end markets in protection grew from the prior quarter, we saw particular strength in communications and computing markets. The overall consumer business, excluding handhelds, was relatively weak in Q2, and our smartphone business was impacted by weakness from one of our North American smartphone customers. Our protection business continues to benefit from the increase in signal performance of high-performance interfaces and increasing number of ports per device requiring protection…

[Operator Instructions] Your first question comes from the line of Rick Schafer with Oppenheimer & Co.

Guys, this is Jason Rechel calling in for Rick. If I could just dig into the SerDes business a little bit first, could you maybe talk about what the split is there between your 40-gig and 100-gig business? And just kind of talk about order rates in each of those and what you're seeing competitively both in 40-gig and 100 gig.

The majority of the business is still 40 gig. We don't break out the numbers. But the majority of the business is still 4 -- the revenue is 40 gig. 100 gig is starting to ramp up quite nicely. So the growth is in the 100-gig side. But I think both -- the deployments are both in 40G and 100G. When we see -- really, it's regional dependent. There's more 40 gig, I think, in Asia. 100 gig -- some of the newer deployments are more global and the greenfield sides tend to be more 100 gig from what we see. Competitive dynamics, we really don't have a lot of competition in the long-haul market other than captive suppliers and where we don't really see an opportunity to win that business. So there is obviously more competition down the shorter reach side and the -- and more on the client side. But on the -- in the long-haul side, we really don't see more of the new competitors there.

Okay. And have you guys seen anyone sampling apart or anyone out there in 100 gig? Or are you guys are the kind of the only ones out here today?

At this point in time, we're the only ones really with the 100-gig SerDes. We know that Broadcom and the other guys are talking about products, but we haven't had -- I don't believe we've lost any sockets to any competitors in the long haul or ultra-long-haul markets.

Okay. And just moving into Timing & Sync, I mean could you maybe talk about what that business kind of looks like now? We're kind of a year removed from a couple of acquisitions in that space. Have you guys seen any change over the last couple of months or just kind of -- have your expectations changed at all?

Which business did you -- were you...

Timing & Sync, excuse me.

The Timing & Sync's toughness [ph] continues to be quite well. I would say that it's a slightly different space. It's more on the axis side, more base stations. And it's -- at this point in time, I would say it's not as growthy as the high-bandwidth infrastructure side. It's somewhat lumpy. But at this point in time, I think it's still promising. We think that there's generally a need for more timing and synchronization as new sites -- new networks with packet-based infrastructure gets deployed. So both the voice video data kind of side needs synchronization across the network. And so we're quite positive about the growth in the market. But I would say that the more -- the stronger segment is really the infrastructure, the high-bandwidth infrastructure and the long-haul side for us.

Okay. And just lastly and maybe I missed it, but could you just talk about lead times? Have they changed over the last couple of months? And what are lead times today?

Order lead times are roughly the same as last quarter. We haven't seen a huge change. There is a little bit less visibility in some areas like the consumer side, but I would say they're roughly in line with last quarter.

Your next question comes from the line of Steve Smigie with Raymond James.

So with regard to the guidance for the -- your comps business there, the -- I think you indicated it might be down -- somewhat flat to down slightly. And we heard some good news out of -- like JDSUs as well as folks from 40 and 100 gig. So I'm just curious if you could talk a little bit about -- is there some lumpiness there or is there something else than 40 and 100 gig? Is it going to be a little bit softer in the coming quarter?

I think it's just timing, Steve. I think that what we know is that the 40-gig, 100-gig ports are increasing. We know that most of our customers are talking about increasing their demand. But the timing is more kind of Q4-ish I think than Q3-ish, and that's why we are guiding modestly down. I don't think it's going to be significant down in the comm business.

Okay. And if you look at some third-party databases or data sources out there, talk about 100% compounded annual growth over the next several quarters, assuming the next several years on port count for 40 and 100 gig, and I'm just curious how closely would you guys tie to that port count growth?

That sounds a bit aggressive. I would say that on the long-haul side, we will do very well. On the client side, in the short-reach side, that's going to be more competitive, I think. And it depends how -- where those ports are being deployed. But we see pretty good growth just on the infrastructure side, on both 40-gig and 100-gig deployments, at least for the next few years. So we should see quite good growth.

Okay. And if I could just slip one more in. With regard to your Gennum business focused on the 1 to 25 gigabit per second business, can you talk about where you're winning in the data center? I mean there's been some good news out of that market and just curious how you're levered to that, like what specific platforms are you getting on and which will be tracking to see your potential success there?

Yes, the barriers to look for are the fiber-to-the-home PON space, GPON and EPON. We only have PMD devices, so these are physical layer devices going into these segments. But the gigabit, 2.5 gig and 10 gig PON segments, so we're very much tied to those. And we are getting good design win traction and good momentum there. Also on the CDR side, specifically the 10-gig, 16-gig fiber channel, 25-gig CDR space, I think we're doing quite well there. And on the backplane side, which is more server backplanes, base stations and those kind of data center applications driven by cloud computing, it's more the 10-gig backplane CDRs that we have done well in and are continuing to do quite well in.

Your next question comes from the line of Ian Ing with Lazard.

This is actually Tyler Radke in for Ian. I was wondering if you could kind of dive in a little more onto the gross margin guide and kind of talk about how that might be impacted by the protection mix or maybe lower utilization rates.

So -- this is Emeka. Well, I think what we're getting towards is that our gross margin was approximately going to be flat at the midpoint. The 2 key issues there was -- in the third quarter, we expect to see a much higher mix for our consumer and computing revenue. And as you know, those have much lower gross margins than the corporate average. But offsetting that to the positive side is the fact that we continue to see the cost synergies that we anticipated from the acquisition of Gennum. We should see that continue to layer on a whole lot more than with what we saw in the second quarter. So that is -- those are the 2 key drivers for the gross margin guidance this quarter.

Okay, great. And then going back to your advanced comm, just kind of thinking about a sequential, I guess, flat or slightly down and then an uptick in towards the end of the year, what makes you so confident -- or I guess, what do you see out there that you really think is going to provide an uptick in Q4? Is it going to be this uptick in spending by service providers or what do you think is driving that?

That's exactly what it is. So we know that the service providers have indicated that they're going to -- we've already talked about how many ports they're going to deploy. They decided which customers, which OEMs they're going to use. And so it's just the timing, and we know it's going to be more back end than Q3.

So just to confirm, you have heard plans specifically from them in terms of I guess orders or is it more just their budget?

Well, the way it typically works, they put out a tender and then they determine who's got -- who has a number of ports -- who's going to get the number of ports. And we have heard all those customers who are going to get the ports, and we know that, that means that they're going to put demand on us. And so it's really just a question of timing. Is that going to be early Q4, late Q4, that type of thing.

Your next question comes from the line of Craig Ellis with Caris & Company.

Emeka, I wanted to start just following up on your comments that bookings weakened in the latter half of the prior quarter. Was that broad-based or where did you see that? I suspect it was in protection given how the business performed versus seasonality.

Yes, Craig, it was actually pretty much broad-based. But like I also said during my prepared remarks, we are very pleased with the strength that we're seeing so far in Q3, which also is very broad-based as well.

Okay. And then as a follow-up, as we look at the protection business, how it performed and how you guided, it's definitely sub-seasonal. So can you just talk about some of the different dynamics that are going on there? You clearly have divergent customer issues, but, Emeka, is there anything new in the customer diversification effort or in the dollar content effort with new customers that can help offset that legacy North American customer?

Yes, Craig, I would say there's 2 things. So one is the overall consumer business, including TVs and set-top boxes and those type of products are not doing as well as they would normally do during this period of time, and then the one customer in North America that is struggling, is giving us some pain. But obviously, we have exposure to the other smartphone manufacturers, and some of them are doing better as a result of the opportunity in the marketplace. And so I think there's also opportunity for us. We're not in all the smartphone manufacturers, and we're working hard to try and penetrate more of the guys that are out there. And there is some opportunity there. And as I mentioned, the automotive space is becoming an opportunity for us as well. So the market will continue to grow. The applications are fairly broad, and I think losing one customer. Obviously, it's a disappointment for us that they're not doing better, but that is the nature of the game.

That's helpful. And then, as a further question and just looking at the Gennum business, but more on the synergies capture side, the company originally guided to $0.20 and $0.40 of accretion off of that deal. Is that still the expectation? And I know on the last call, the company indicated that there may be some upside in terms of the revenue synergies that you thought were possible. Can you give us an update there as well?

Yes, $0.20 to $0.40 is still the goal, Craig. And we think that we're on track to achieve those type of accretion numbers.

And revenue synergies, Mohan?

Our revenue synergies, it's still difficult to say and say it's still a bit early. But what we're seeing is -- as I talk about the long-haul strength that Semtech has on the line side and Gennum's strength on the client side, a lot of their customers are the same customers. And we're starting to get exposed to the challenges, but also the opportunities that exist in some of these customers as we bring the different products to the table. So I'm pretty confident about it. I just -- I can't -- we don't have any numbers associated with it. I think that we're going to see some of our leading customers who have been and continue to be leading customers for us in the 40-gig, 100-gig long-haul side and are potential customers for us on the Gennum side on the backplane products and on the GPON, EPON, kind of fiber-to-the-home area, I think we're going to see some good synergies there.

Okay, that's helpful. And then lastly, Emeka, with the addition of Gennum, which is a substantial business, how do you think about seasonality in the fourth quarter? I know you're not guiding, but how do you think about the way the seasonal dynamics play out with that incremental business?

Well, as we mentioned, it is still new to us. We haven't had the benefit of seeing how everything is going to play out. But with the acquisition of the SMI business and now Gennum driving that increase in terms of the communications and industrial content in our revenue, we're thinking that maybe what we should see going forward is that Q1 should be slightly up, Q2 would be nicely up, and Q3 will be up and then in Q4, the expectation is that, that should be flat to down.

Your next question comes from the line of James Schneider with Goldman Sachs.

Mohan, I believe you talked about bookings having strength in the month of August and the first part of this quarter after having weakened in the last part of the past quarter. Can you maybe talk about some of the areas where the booking has strengthened the most and whether you think that is a trend or just kind of an incremental blip?

It's difficult to say if it's a trend or an incremental blip, but it looks like it's more of a trend. I would say for us the protection business bookings are very strong and that's a good sign, which is what we would expect in this type of -- this period in Q3. But also, across the board, I think in general, the bookings are fairly broad and have been quite strong. As we said going -- coming out of Q2, the book-to-bill was less than 1. So it's encouraging that we're coming into Q3 with very strong bookings and gives us a good feeling about moving our turns number for the quarter.

Great. And then maybe as a follow-up, I think you also touched on the fact that you would expect to see most of the Gennum synergies, the financial synergies from here being driven by higher revenues. Is there any kind of gross margin or OpEx synergies further that you would expect from this point? Or is it all going to be just revenue leverage?

Jim, so I think on the synergy side, obviously the revenue synergy side, as Mohan did indicate earlier, a lot of those are still to be quantified and I think that is probably more of a 2014 fiscal year item. In terms of the cost synergies on the operating expense side, I think we've seen a significant portion of that. There is probably a few more to go. Most of the synergies that we still expect to see is going to come on the manufacturing cost side, and we would expect to continue to layer that on as we go through the end of the year.

Great, that's helpful. And then lastly from me, on the Power Management and High Rel business, that's been, as you mentioned, somewhat disappointing recently. We're down in kind of the $15.5 million level at this point. Is there any visibility in terms of a rebound in sales in that product? Can you see your way clear to where this could exceed $20 million again in the relatively near future? Or is it -- we're going to take a few more quarters at this level before we start to see it turn around?

Yes, there's 2 elements to it, Jim. I think the Power Management business is -- actually there is an opportunity there for that to grow going forward. We seem to be doing quite well in the white LED side on the display side, particularly in the automotive segment that's starting to grow nicely. But the high rel side, particularly the military areas, is still what I would say, call it very disappointing. It just really isn't doing much, and that doesn't seem like we see any net opportunity to really grow that fast. So I think that's probably going to take longer.

Your next question comes from the line of Terrence Whalen with Citi Investment.

This one relates to Gennum. Mohan, as you had some time to dig more into Gennum, can you talk a little bit about what you see as the most promising growth opportunity at Gennum? And also, could you quantify maybe perhaps a longer-term growth rate for the different parts of the business through the video versus the enterprise?

Yes, well let me start with that first. The video business is a lot more stable business. It's kind of point product equalizers and drivers and SerDes products that go into the broadcast video space. And that's a very stable business. We're looking to reinvent that in some ways and change the dynamics of some of the things we've been doing there. But for now, I think for the foreseeable future, that's going to just be a stable business, and that's what you can -- the way you can view it. The more exciting growth areas are really the, what we call the enterprise computing product areas, which is the datacom side. The -- I talked about the GPON devices, the CDR devices that go into a range of different equipment, including storage networking. And then our backplane CDRs, which are all doing very well from a design win standpoint. And I think they're all good growth markets to be in. So one of the things that I have always commented on is this high-bandwidth infrastructure bottleneck moving to more the access and the data center side. And I think that's why -- one of the reasons why we acquired Gennum, and I think it puts us in a very good position to take advantage of that bandwidth bottleneck and helping the industry remove those. So that's a good space, and we think that will grow nicely. And then the Thunderbolt business is doing very nicely also. That's growing fast. It's small today, but it's growing quite nicely as the demand for that increases. So those are the 2 areas I would focus on, they're really the datacom enterprise computing products and the Thunderbolt from a growth standpoint.

Okay. And as my follow-up question, it could -- I guess, could you put some numbers around the growth expectations, I think longer term of the parts of the Gennum business? And then also, separately, it sounds like we're at a point with power management where that might actually inflect positively and begin growing based on the different design activity that you've focused on over the past year, perhaps in '13. Can you touch on that as well?

So I think the video business, I would say, high single digits depending on the market. I would say the enterprise computing product areas would be in the mid-teens, and Thunderbolt is going to grow at a very fast rate depending on the cable acceptance in the marketplace and the deployments in the marketplace. But that's obviously going to grow at a very fast rate because it's very small today. And then the power management, it really does depend on how effective our new products, which we've got coming out now and we started to release, start to get some momentum. Obviously, if we get some momentum with the power management products, Semtech has a brand image in the marketplace. We have the customer relationships, we have a lot of potential synergies between our different businesses, and that could grow at a very fast rate. But we're not there yet. I will obviously talk more about it if -- when we get there. But that potentially could grow very fast at the high teens if we get that momentum.

Your next question comes from the line of Harsh Kumar with Stephens.

Just, Mohan, could you talk about your commentary on the late calendar pickup in your optical business? Could you maybe put some color around what geographies we're talking? Are we talking North America or some other ones are involved? Also, is it 40 or 100? And then the second part of the question is if these are telco projects, these typically have longer legs than just one quarter or so. Could you maybe just talk about that?

Yes. So the regions that are really are driving up are Asia and North America, particularly China and North America. And I think it is a combination of both 40-gig and 100-gig deployments. So -- and you're right, these things aren't one-quarter events. But typically, you see that they are a little bit lumpy. Just the first half of this year has been quite good and the anticipation is the second half will be probably good, but more back end, more Q4 loaded. And on an annual basis, it will grow significantly from last year. And I expect that next year will as well. So this isn't a one-quarter event. This is an ongoing process.

Fair enough. And then I'm trying to put some context around your commentary relative to your guidance. I think you said a strong momentum starting August, and I think you also said 43% of your revenues are turns business. So I'm curious why the guidance is sort of flattish, if you will? Why not -- since you think this is a trend, why not maybe have a little bit more growth in the guidance?

Well, 43% turns is about what we typically see at the beginning of the quarter, Harsh. And then, yes, the bookings have been strong, but we base our guidance on the demand forecast. We look at the demand that we have in each of our businesses, and we look at what our customers are telling us, and we base that guidance on that. So obviously, if we see the demand increasing and the bookings are strong, we would guide more aggressively. But at this point in time, we -- that's kind of how we came to the number.

Got it, Mohan. And if I can ask one more, Mohan, if I was to ask you on Gennum, in terms of what's left to be done, I mean how far -- how much more time is it before you feel like Gennum is up to snuff relative to your expectations?

That's a good question, Harsh, mostly because we have very high expectations on the sort of step in [ph]. The business is doing well. As you know, it's a record quarter for them. The integration is going well. I think there's a lot of opportunity from a return on R&D standpoint. I think there's opportunity on the revenue synergies -- from the revenue synergies standpoint. I think there's opportunity on -- from a supplier consolidation standpoint. I mean there's lots of opportunities there. And so, we just got to keep battling all of those areas. But the things that I like are -- that customers are starting to recognize that Semtech/Gennum has a great portfolio of products for them and are starting to see that we can be a very important strategic partner for them. So that's very good. The engineering team in Gennum is outstanding, both the video and the computing datacom side, really, really talented group of people. And so I think that, that culture of engineering fits well with Semtech. And we're going to see the benefit of that in the years ahead here.

Your next question comes from the line of Li-Wen Zhang with Baylock.

And I would also like to have some updates on your protection business, the first base -- how about the gross margin for that product line and then as well as your future growth strategy for this product line. You -- were you going to -- will you moved to a more high performance, high gross margin applications like communication and away from like the lower pricing, lower gross margin applications like high-end consumers?

Well, let me start with that, Li-Wen. I mean we already do that. I mean we don't go off the kind of the low-end, low-priced kind of commodity volume-driven, fab-filling strategy. So we tend to stay away from the markets and applications that don't need the high performance. So when we -- most of where we see loss of share, for example, is where our customers are losing the share. It's not we are losing against someone. So -- and we already have a presence in communications. We are in most of the Ethernet ports, central office systems, comm infrastructure, Voice over IP. We're in all of those areas with our Ethernet protection. We're in most of the high-end computing systems. I mentioned automotive as a new space that's emerging because there are starting to be requirements for Ethernet and USB protection in the vehicles. So that's a new opportunity for us. But we continue to be very aggressive on the smartphone business. We think we have great technology for the smartphone business, and we'll continue to play in that space. Gross margins tend to be in the middle of our range. As you know, our range is 55% to 60% on a non-GAAP basis and protection kind of sits right in the middle there. Some segments of the protection business are a little bit lower gross margin, some are a little bit higher. But that's the range.

And also, another question about your high-end consumer -- no, I'm sorry, the handheld devices. So that line includes tablets and the smartphone, right? And that would...

The high-end consumer includes tablets and smartphones. And we broke out the -- from a company standpoint, we break out the number of percentage of handhelds as well.

Yes. So handheld is mainly smartphone and the tablets. And then what main product do you sell to that handheld devices?

To all the handheld devices, we sell protection. We have some power, we have some touch sensing products that go into tablets. We've done quite well in tablets. Pretty much all of the tablets out there use our protection. We have some touch sensing products emerging in some of the tablets, and we have some power management also in some of the tablets.

Okay. And then my last one is what is your dollar content in the tablets, what applications?

If there is, I would say from $0.30 to $1, depending on the tablet.

There are no further questions at this time. I'll turn the call back over to the presenters.

Let me summarize by saying that Q2 of fiscal year 2013 was another strong quarter for Semtech. We posted record revenue, record non-GAAP gross margin and record design wins. In addition, we launched several new products that solidify our standing as a leader in analog mixed signal innovation that delivers true value to customers. We believe our strategy of diversifying our exposure by product group, end market, geography and customers will enable us to take advantage of multiple long-term trends that will drive growth in our industry for many years to come. With that, we thank you for your continued support of Semtech and look forward to updating you all next quarter. Thank you.

This concludes today's conference call. You may now disconnect.