Welcome to Semtech Corporation's First quarter Earnings Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Sandy Harrison, Head of Investor Relations. Thank you. You may begin.

Thank you, Devin, and welcome to Semtech's conference call to discuss our financial results for the first quarter of fiscal year '21. 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 was issued after the market closed today and is available on our website at 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 and in the other Risk Factors section of our most recent periodic reports filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only, and Semtech undertakes no obligation to update the information from this call, should facts or circumstances change. During the call, we will refer to non-GAAP financial measures that are not prepared in accordance with generally accepted accounting principles. Discussion of why the management team considers such non-GAAP financial measures useful along with detailed reconciliations of such non-GAAP measures to the most comparable GAAP measures are included in today's press release. All references to financial results in Mohan's and Emeka's formal presentations on this call refer to non-GAAP measures unless otherwise noted. Also, beginning this quarter, we will be reporting our business under 3 end markets compared to the 4 previously, which, we believe, better reflects the ongoing consumption of our products. We have combined what was previously our enterprise computing and communications end markets together to form the infrastructure end markets, while our high-end consumer and industrial end markets are largely unchanged. With that, I will turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu. Emeka?

Thank you, Sandy, and good afternoon, everyone. For Q1 fiscal year '21, net sales decreased 4% sequentially and increased 1% over the prior year to $132.7 million, which was above the midpoint of our guidance. In Q1, shipments into Asia represented 80% of net sales. North America represented 12% and Europe represented 8%. Total direct sales was approximately 22% of net sales, and sales to distribution was approximately 78%. Our distribution business remains balanced, with 40% of the total POS coming from the infrastructure end market, 34% from the industrial end market and 26% from the high-end consumer end market. Bookings increased strongly over the prior quarter and resulted in a book-to-bill significantly above 1. Tolls bookings accounted for approximately 34% of shipments during the quarter. Q1 GAAP gross margin declined 20 basis points to 60.9% due to lower absorption associated with COVID-19 shutdowns, and we expect our Q2 gross margin to improve slightly as impact of higher mix of infrastructure revenue is slightly offset by COVID-19-driven lower absorption. Q1 GAAP operating expense decreased 12% sequentially as expected due to lower share-based compensation and pension expense. And in Q2, we expect GAAP operating expense to increase between 2% to 5%, sequentially, primarily due to higher share-based compensation expense. Q1 GAAP order expenses increased to $4.8 million from $3.1 million in Q4. In Q1, we wrote down the value of some of our minority investments by $3.6 million due to COVID-19-driven liquidity concerns. Moving on to the non-GAAP results, which exclude the impact of share-based compensation, amortization of acquired intangibles, acquisition-related and other nonrecurring charges. Q1 non-GAAP gross margin declined 20 basis points sequentially to 61.3% due to lower absorption associated with the shutdowns. We expect our Q2 non-GAAP gross margin to improve slightly as impact of a higher mix of…

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q1 fiscal year '21 performance by end market and by product group and then provide our outlook for Q2 of fiscal year '21. Before I go over our Q1 performance, I want to take a moment to discuss some of the areas where COVID-19 has impacted Semtech, and what we have done to address the challenges from this terrible pandemic. As a global company, Semtech was impacted by the actions taken by different countries, and we have operated under the direction of the various regions where our employees are located, and we will continue to follow their guidelines for the safety of all of our employees. Over the last several years, we have invested heavily in dual sourcing strategies, and in IT operations and sales infrastructure and systems to provide a collaborative environment for our employees and to attract and retain the best talent. These investments have enabled and will continue to enable us to minimize the impact of site closures and supply chain disruptions to our overall business. In Q1 of fiscal year '21, net revenues decreased 4% sequentially to $132.7 million. Stronger demand from the infrastructure end market was offset by softer demand and some temporary supply constraints in the high-end consumer and industrial end markets. We posted non-GAAP gross margin of 61.3% and non-GAAP earnings per diluted share of $0.35. In Q1 of fiscal year '21, net revenue from the infrastructure market increased 1% sequentially and 24% over the prior year and represented 43% of total revenues. Net revenues from the industrial market decreased 9% sequentially and represented 30% of total revenues, while net revenues from the high-end consumer end market decreased 5% over the prior quarter and represented 27% of total net revenues. Approximately 16% of…

[Operator Instructions]. Our first question comes from the line of Tore Svanberg with Stifel.

Congratulations on the results. First question is on your bookings and kind of linearity. So we've heard from a lot of companies that have actually gone into their future quarters with high backlog, how about Semtech? Have you continued to see solid bookings even so far in the month of May?

Yes, Tore, bookings continue to be strong for us. It's obviously a mixed bag. Obviously, the infrastructure segments and IoT appear to be strong. Consumer appears to be fairly weak. Again, mixed bag even within consumer and I would say industrial is fairly weak at the moment. But bookings at the moment still appear to be quite strong.

Very good. And as a follow-up, it sounds like LoRa is going to have a pretty good quarter here in July. You did note that it was a little bit weaker-than-expected this last quarter. So if we look at the strength, is it coming from sort of a catch-up? Or are you now really starting to see some new deployments actually drive that strength?

A little bit of both, Tore. I think, remember, in February and March, China was essentially shut down. So we really -- I mean, literally shut down. So there wasn't much going on at all. And so I think in April, we saw some catch-up there and then obviously, continuing May. But I think in general, what's happening with LoRa now is that we're starting to see some broader usage, more and more use cases. And actually, as I mentioned on the -- in my script here that COVID-19 also is potentially driving some pickup in opportunities. And I mentioned -- as I mentioned before, that we're starting to see a broader set of geographical use cases as well. So more in North America and in Europe as well. And those tend to be different use cases in the metering and small building use cases in China. So just generally quite positive for LoRa at the moment.

Our next question comes from the line of Scott Searle with Roth Capital.

Nice quarter. Just to dig in on the protection front, Mohan, you indicated that it would be flat to down for the year. I was wondering if you could give us some clarity on how that looks going into June and maybe give us an idea -- differentiate between domestic China and non-China shipments? And as well on LoRa, it sounds like we get a nice snapback in the June quarter, but you have the range out there for fiscal '21 of $90 million to $120 million. Can you give us an idea about what has to happen? What kind of inflection do we need to see to get to the higher end of that range?

Yes. So let's start with protection. Protection, you break it into two segments, really, the consumer business, which is mostly smartphone and then the nonconsumer business, which is doing quite well. It's broader kind of market -- all the rest of the markets, including comm and industrial, which is doing very well at the moment for us. On the consumer side, specifically, obviously, smartphone, which is the largest piece of our business within consumer. It's a mixed bag within the smartphone business. I would say that Q1 was definitely weaker for China, smartphones, Korea smartphones was about flat, and North America was actually better than expected. In Q2, we're expecting a little bit of a increase in China smartphones. We expect probably Korea to be, again, flat to maybe down. And then North America to be okay, but the second half, we are anticipating that most of the smartphone business, at least in Q3, will be down. And some of that is supply constraints from some of our customers that we've been hearing about, again, all COVID-19-driven. So that could change in a heartbeat, as you know, and that could strengthen the second half, but at the moment, consumer is looking weak, but in general, the -- our -- the rest of our broader protection business is looking quite good. I don't know if it can offset the consumer weakness. So we just have to wait and see. And then on the LoRa front, we haven't yet seen any pickup from our Smart Home real -- the catalyst of Smart Home business that I've been talking about for a while. We do anticipate that in the second half to start growing nicely. But again, on COVID-19, maybe that gets delayed, we don't know. So a lot depends, I think, on those kind of more consumer-ish segments. And I'll call hot smart home, smart consumer and maybe even asset tracking and logistics to be in that category to determine whether we get to the high end of the range, but my sense is things are going in the right direction. I think, obviously, last year was a disappointing year for us because of the China issues, but I think we're starting to see the momentum across the board across all regions and across many different use cases. And as I mentioned, COVID-19 is actually driving its own set of use cases for us, which is quite encouraging if those pick up as well. So we'll see.

Our next question comes from the line of Quinn Bolton with Needham & Company.

Let me also say congratulations on the nice results and outlook. I guess first quarter with record POS, record bookings, just wondering if you have any sense whether your customers are buying ahead or trying to build offer inventories given the COVID outlook? Or do you think most of this product is moving through to end-use applications?

Yes. We've been looking at that very closely, Quinn. And I think the encouraging thing for us is it's across multiple product lines, across multiple geographies and across multiple end markets. So if we look at base station, 5G base station is strong. PON, 10-gig PON is strong. Data center, obviously, is strong. And some of that -- those segments all cut across different regions of the world, some in China, some in North America, some in different parts of Europe. And then all of this is LoRa is also pretty broad. So we don't think there's much. We haven't seen much cancellations or pushouts or anything to suggest that it's weakening at all. I think it is very much -- infrastructure is very much going to continue to see growth. And I think that's where we're seeing most of the strength, both in the POS side and the booking side.

Great. Second question and just to follow-up on Scott's question about the more consumer use cases or smart home use cases for North America. You mentioned you continue to see or expect that ramp to begin in the calendar second half. I guess, to the extent that these are devices that have to go through DBT and EBT testing, I would think that a lot of those devices are well into that process right now. Do you see that testing activity taking place, and that's what gives you the confidence that these devices are still on track for second half? Or have you seen some COVID related delays in the testing and qualification of those products just given mobility, and flight restrictions and that kind of leads you to the comment that there may be some delays due to COVID?

Yes. The answer to that is yes and yes, Quinn, to be honest with you. I think we have seen testing. We do see that stuff is going on and see the progress. But COVID-19 is a very unique phenomenon, obviously. And we just don't know whether customers are equipped and ready to kind of drive the strategy that -- the way they were driving the strategy. There's nothing to suggest anything's changed. They just think a quarter delay, given what's happened with COVID-19 around the world wouldn't be a surprise. That's not what we're hearing at the moment. We're hearing everything is on track, and things are going quite well, but I just want to caution you that things -- with COVID-19, there's just so many unknowns. We just -- there's too many uncertainties on supply. There's too many uncertainties on regional shutdowns, there's a lot of uncertainties around the macro events surrounding us. But if you take those out of the equation, I think things are on track.

Our next question comes from the line of Christopher Rolland with Susquehanna.

I think you guys are the first to report since the Department of Commerce broadened the entity list. I guess, first of all, if you could remind us what you were shipping to Huawei last quarter and why you decided to ship nothing to Huawei this quarter? And then secondly, the broadening of the entity list, what's the revenue impact from that perhaps you can help us size that?

Yes. So I said in my prepared script of my remarks that that's all built into our guidance. So we looked at the entity list, the extended entity list, and there is a minor impact, and we included that in our numbers. So the guidance takes that into consideration. It's fairly small. From a Huawei perspective, we shipped about $9 million to $10 million in Q1. Our guidance assumes no more shipments into Huawei this quarter. So that's the comment I'd make that from our perspective, the risk is taken out of our guidance. So -- but yes, we still expect to ship some revenue into Huawei. I think it's more a question of do they -- can they ship their systems? Do they need the products and those type of things with the increased restrictions on them. So as far as we're concerned, we've pretty much derisked Huawei business from our numbers as best as we can.

Okay. And just to make sure, guys like Fiberhome and some of the other entity guys, just wanted to make sure those aren't going to affect any of your businesses? And then separately, just talking about data center demand, if you could talk about that a little bit more, particularly around the PAM4 opportunity. The analog short-range side that you guys are more focused on, maybe you can talk about how that market's developed?

Yes. So as I said, Fiberhome and all of the other companies on the entity list. At this point in time, we don't see any issue for us. Obviously, things change daily on that front, but at this point in time, at least for Q2, we don't expect any -- it's all built into that guidance anyway, any impact. And if it isn't -- if there is an impact, it's fairly small, I would say, even for companies like Fiberhome. Then we -- coming back to the data center side. Yes, our data center business is going well. Our 100-gig modules are ramping up nicely. As I said, with ClearEdge doing very well. And now we're starting to sample our Tri-Edge platform. This is our first PAM4 platform, which goes together with our FiberEdge PAM4 PMD products. And so we're starting to see some good interest there, both on the 200-gig and 400-gig side. We'll also have longer reach products out this year. So my sense is we'll be able to expand our PAM4 portfolio and get a little bit more momentum there. Obviously, this year, the revenues will be fairly small, but next year, we're expecting that to ramp quite nicely. So yes, good progress generally. We just have to wait and see. We still think, at the moment, 100-gig is the primary market for us to focus on and then 200-gig and then eventually, probably the end of this year, 400-gig, we'll start to see some revenues and then next year.

Our next question comes from the line of Rick Schafer with Oppenheimer.

Yes. And let me add my congratulations, guys. I just have a couple of follow-ups, I guess. The first is back to Quinn's question. I'm curious, can you describe your approach or give some color on the way you approach sort of vetting your order book? How do you scrub for the potential for double orders? Or how do you kind of look and see what's a pull-in versus a normal order from a customer? And yet -- because sort of a -- that's a broad question, I know, but I'm just curious how you guys do that.

Yes. It is a broad question. And it's a tough question, as you know, Rick. But I think what we tend to do is we do go talk to the end customers. We do look at tenders that are out there, for example, on 5G that we know about and the number of, for example, base stations that are going to be built and then who's going to get those base stations, and how many optical modules that drives, and how many ports that drives for us and how many so you can kind of get a feel for that. We can do the same on the PON side. You can -- so you can start to do it that way. I think it's more difficult when you have a broader market area like in the industrial side for our protection business, for example, where it's more mass market and distribution focused. It's a little bit more tricky. But in general, you can. But typically, what you see, if you're getting a lot of double ordering, you'll start to see more cancellations as things fall off for 1 guy or they're not going to be -- they don't want to be left with a lot of inventory. So you'll start to see that and you'll start to see push-outs of orders and things like that. I would say that outside the consumer space. So we haven't really seen that. I would say, some industrial, but mostly consumer, we see that a little bit, but not so much in the infrastructure side. So my commentary, and I think this is validated by the bookings being stronger on the infrastructure side is that I do think it's driven by real demand and need out there. Also, POS being strong indicates that as well.

And then maybe just another follow-up. It's on PAM4. I'm just curious, do you think you have a pretty unique perspective? You guys, obviously, the incumbent in 4x25 CDR, large market share there. I'm curious, why has DSP dominated that PAM4 market to date? And I'm curious how you see that market evolving over time? And maybe just at the very end of that question, I'm curious, I know you've talked about PAM -- Tri-Edge really picking up next year. Can it be a material revenue driver for you guys in next year, in fiscal '22?

So yes, let me answer that. First, I think it will be. I think Tri-Edge, this year is the test year really for design wins and design-ins and validating the performance of the technology and making sure our assumptions are correct and things like that. But I expect we'll have design wins this year, and I think it will become meaningful revenue probably towards the latter part of this year and then certainly next year. So that's the first comment. The second comment is on DSP. As you know, we invested in DSP. We went down that path and then chose not to continue down that path. So the incumbents are there, and they have a leading position, and I think it's the first technology to implement PAM4. And I think that's the reason for success there. But we made -- it was a strategic decision to continue down the analog path. And I think we have to demonstrate that. It was the right -- good decision for us. And I think we can. I think, certainly for 200-gig and 400-gig, we will, over the next 6 months here, demonstrate that value.

Our next question comes from the line of Gary Mobley with Wells Fargo.

Let me extend my congrats as well. If my math serves me correct, you are expecting your July quarter sales to grow, what, roughly 10% sequentially, netting out the headwind from Huawei. Just to sort of clarify what's driving that. It's a bounce back in the LoRa business. It's telco and data center related bookings strength and whatnot. And if I'm not mistaken, the new tighter export restrictions don't kick in until the end of June, any chance of generating turns business with Huawei between now and then?

Well, so Huawei, the way we are planning -- playing -- doing business with Huawei is somewhat opportunistically, as I said, I've taken it out of the guidance for Q2 we're not expecting any more shipments. But if it comes in, we'll look at it. And if we can ship. And largely, most of our products we can ship to them. There are a few that are we cannot ship. But most of the products we can ship. The issue is more, can they get the components from other suppliers? Or are there other restrictions, especially with the recent more restrictive approach in terms of what they can, HiSilicon, for example, not being able to ship, I think, or not being able to get access to some foundries is more of a challenge. So I think in general, I would say the impact of the additional restrictions is somewhat minimal to us. And unless things change, we don't see any change to that.

Okay. And all right. So let's move on to strength in end market demand. So your point of sales significantly increased your -- exceeded your reported sales, but can you share with us by how much and what the net impact was to the channel inventory?

So POS was a record for us in Q1. Obviously, because of the record, the channel inventory came down. So channel inventory is in good shape for us. And the good thing about the POS, both the POS and I think our bookings, it's fairly broad for us. So base station, as I mentioned, is looking good, driven by 5G. We know of the tenders out there, and we know that we have a significant opportunity to get a large chunk of that business. And so that's going quite well and that's driven stronger bookings for us for, obviously, for shipments in Q2 and beyond. The PON business, as I mentioned, the 10-gig PON is doing very well, continues to be going quite strong. And then data center is clearly probably outside LoRa , the strongest area of growth at the moment. Both 100-gig also FiberEdge for PAM4 side. So that's doing quite well. And then LoRa, as I mentioned, has bookings very strong, and we expect a strong Q2 there as well.

Our next question comes from the line of Harsh Kumar with Piper Sandler.

First of all, congratulations, very, very strong results. Actually, when I look at your guidance, it's, I think, a little bit better than most of the companies are reporting for this time. And I heard all the questions on double ordering. So I'm trying to understand, for as long as I can remember, you've had turns in the about 34%, 35% range. My understanding listening to you is that you're 80% booked. I think you said the turns were estimated at about 20% this year. So a question for you is, why not guide higher and/or alternatively, is this the sort of padding in terms -- in case cancellations do happen?

Yes. So Harsh, first of all, the 20% is accurate. It's all the turns we need. It's probably the lowest percentage of turns in my -- since I've been with the company, CEO of the company, and that's 15 years. . So it's obviously -- it's a relatively low number to what we're used to achieving. Having said that, there are a lot of unknowns. I think there's a lot of uncertainty around still the consumer business. I think the broader industrial and COVID-19, is there going to be another resurgence of cases, especially here in North America that's starting to just starting to get back to normal, I think. So there's still uncertainty, and we just took the approach that I think several other companies have taken, which is just to sure that we plan conservatively and guide conservatively. And that's what we've done.

And then I had a question on LoRa. Do you think the -- first of all, was LoRa the fastest sort of bookings area for you in this second quarter, going into the second quarter? And do you think the reason is that because China is back and that hurdle got removed, that the bookings ramped up dramatically? But then as we look at the landscape, the tensions are flaring up again. I know this is an open ended question, and nobody knows the answer, but is there a possibility that LoRa could get caught up in that? Or do you think because it's outside of infrastructure that it will probably get saved or set aside?

Let me start with the first part first, Harsh. The bookings were strong across the board, especially on the infrastructure side. So data center was very strong. Base station was very strong. And LoRa was very strong for us as well as on the protection -- broader protection business. So those are the 4 main areas. Now within the LoRa domain, obviously, still today, 55% of our revenues of LoRa are from China, but remember that February and March, China was really shut down. I mean, for a large part of February and March, it was shut down. So as I said, it did pick up in April, came back, but I would say, as I've said, now the opportunity pipeline for LoRa and where we're seeing a lot of the new revenue is, and like I say, new revenue versus older revenue is not smart metering and smart buildings and smart cities. But it's starting to look like smart home, smart logistics, some of the areas are going to pick up and do quite well. And then the other thing that I mentioned is that COVID-19 itself is driving some use cases that it's not material yet, but could be quite significant and quite soon and I think if they play -- start to play out, then smart health and smart temperature monitoring and things like that start to come into play. So a lot of different use cases. So I think we're not really that worried about additional restrictions. I mean, of course, you can never say no, something could happen and things could get worse. But our -- most of our opportunity pipeline, about 80% is outside China now. So, and while we continue to work with China and continue to do well in terms of new design wins and working with our partners there, we also have a lot of opportunity outside China that's going to drive growth for us.

Our next question comes from the line of Tristan Gerra with Robert W Baird.

So given the restrictions that Hisilicon is going to have notably not being able to build NB-IoT chips at TSMC and knowing that the Chinese government has pushed in the IoT, and I know that it's obviously not a perfect overlap with LoRa, but does that change the competitive landscape longer term, where to the extent that China's own NB-IoT and IoT efforts potentially impaired for a longer amount of time that it could actually create actually more demand for lower in the medium term?

Well, I'd like to think so, Tristan, but we're not depending on that. For us, the use cases drive really where LoRa is winning. The Chinese are going to -- Chinese government is going to continue to push NB-IoT. The cellular guys around the world will continue to push for NB-IoT. We're not going to stop that. I think that's not going to be our strategy. Our strategy is always deliver the technology to provide the best use case implementation for our customers so that they really can get the lowest battery life, the -- and use the technology to deploy the system that they need to deploy in an efficient way. And so our feeling is, as we get more and more of our new products out like LoRa Edge, they just -- we're just going to create quite a large gap between what LoRa can do in certain use cases and what NB-IoT or any other technology can do, and that's really the way to win. And I think that's what we will do even in China.

Okay. And then a quick follow-up on LoRa. In fiscal -- last year, we basically saw a little bit of a decline in your average node per gateway based on the data that you're providing. Given the reacceleration that you see for LoRa this year, should we expect the number of node per gateway to actually increase year-over-year? And also, given again that LoRa was probably pretty weak earlier this year in China, do you expect this coming quarter for LoRa to be up year-over-year?

So yes, I do. I expect LoRa to be up year-over-year. The other comment on end nodes per gateway. Remember, gateway deployments are doing very well, actually. And that's another metric that we look at, obviously, around the world. How many gateways are being deployed. As I mentioned, in Q1, 800,000 gateways from 640,000 the end of FY '20. So significant increase in gateways. And that tells us that the use cases, the -- all the opportunities we have are starting to get into their proof of concepts, and they're moving from proof-of-concept to deployment. And that's really what drives the end nodes. So you can look at it on a real-time basis and say how many end nodes we have deployed and how many gateways, but the gateways allow a lot more end nodes to be connected. So at the moment, 800,000 gateways drives around 3 billion sensors. So 3 billion sensor nodes or end nodes can be connected to those gateways. So there's plenty of capacity out there. And that's the goal we have is to drive enough capacity. And then the end modes will follow. That's just the use case driven. So as the use cases start to get deployed and emerge, then you'll start to see more and more end nodes deployed.

Our next question comes from the line of Craig Ellis with B. Riley FBR.

Yes. Congratulations on the good quarterly execution, guys. I was hoping I could just start with a clarification before a couple of questions. The clarification is, I think I heard you say that wireless sensing was down 20% quarter-on-quarter. But within that, can you tell us how proximity sensing performed versus LoRa?

They both were down quite significantly. Do you have that?

No.

Let's see. Just hold on a minute, I would [indiscernible] that information. Yes, both were down. And both quite down by about the same amount, I think, from a percentage standpoint, Craig. So I think proximity sensing coming down was driven by, obviously, a lot of smartphones, more consumer. LoRa enabled mostly was down because of the China was shut down for February and March. So 2 different dynamics going on, but both came down significantly. And then there was some -- yes, the other thing, Craig, sorry, is that there were some supply constraints that really drove both for -- in both -- mostly in the proximity sensing and in some other areas of that business, the wireless and sensing business that drove that business to be down.

Got it. And then for the first question, Mohan, it sounded like as you went through the different LoRa metrics that you've retained all your metric targets for calendar '20. So congratulations on that. My question is with a retained revenue range of $90 million to $120 million, what would make the difference between the business coming in closer to the low end of $90 million versus coming at the high end, the $120 million?

The main delta will be the emergence of some new use cases. And I mentioned a little bit more consumer-ish, more smart home that we know are in play that was scheduled for Q2. We'll see if things happen in Q2. And if they do, they should drive us probably towards the, I would say, more the mid- to high-end, but we'll see -- a lot depends on the pickup and how that's -- how those use cases are adopted and how quickly. And as I mentioned, with COVID-19, the difficulty is not -- it's really -- we don't think it's going to have a long-term impact to the business. It's just the timing of some of the things that are going on. And whether consumers and smart home and even some enterprises doing smart logistics are going to delay programs by a quarter or two. I don't think it's going to be that significant, but it may delay by a quarter. And if it does, it moves into next year, but we'll see, we'll have to monitor it and I'll report on it as it happens.

Okay. That's helpful. And then lastly for you. I think in your answer to an earlier question, you noted that within Signal Integrity, it looked like the hyperscale part of the business, the data center part of the business was the strongest of the different opportunities in the near-term ahead of PON -- ahead base station. The question is given that investors are worried about the duration of near-term strength for chip companies, where do you have the greatest confidence as you look out into the back half of the year that some of this near-term strength can be maintained?

Yes. The back half being Q4 is difficult to project now. I think we're getting indications that Q3 will be okay. And I think part of that is knowing that the base station market for example, in China, we know they're deploying a certain amount. We know that they're going to do it this year. We know how the different customers are planning, and we know our position in those customers, and we think we have a very good position in that market. So we think that's going to play out this year. The PON business, as we know, as I mentioned, one of the nice things about PON, especially the PON-X 10-gig play that we have is that becomes a kind of a handoff to the 5G for the -- a lot of the 5G networks. And so that's a new -- really a new thought a new architectural kind of value that PON brings and that's very encouraging. I think the other thing that's really often not really understood is that both base station and PON, while China is by clearly, by far, the biggest opportunity today we're starting to see now AT&T, Verizon, talking about gigabit PON, and we're starting to see, obviously, the U.S. market and European markets talking about 5G and deployments. And so a broadening of the opportunity geographically, which I think is very encouraging and a very good as well. So we don't see much slowdown, even the second half, to be honest with you, but obviously, a lot depends on COVID-19. But from a need standpoint, the need is clearly there for more bandwidth for consumers, for enterprise and so that drives more base station, that drives more PON, it clearly drives more data centers. So at least for this year, we think that will continue.

That makes sense. And if I could sneak one in for Emeka, I feel like he's been a bit neglected. Emeka, you mentioned that with the second quarter gross margin mix would be a tailwind, but absorption would be a headwind or utilization would be a headwind. I guess that's the flow-through effect of the first quarter revenue. As we look beyond the fiscal second quarter, do you get both of those things working your way? And could we see gross margins getting to the 62% level as we exit this year?

Yes. Yes. Craig, I think that is the expectation. I mean, as you listen to all the areas that we have, a lot of those are coming with very high gross margin. So the data center, the 5G, the PON, the 10-gig PON and then the protection industrial applications as well. So we think a higher mix of those type of revenues and demand stays strong and going up, driving higher absorptions allows us to move our gross margins up to around the 62% level.

Our next question comes from the line of Karl Ackerman with Cowen Company.

Two quick ones, if I may. Mohan, just kind of curious, how do you think about the FCC decision to make available the 6 gigahertz band for Wifi. I'm just kind of curious, some investors have been a little bit worried that this may limit the 40% annual CAGR of LoRa adoption in consumer environments. As consumers opt for higher performance, but much more expensive routers for in-home connectivity. I was just kind of hoping if you could talk about that, how it would impact your consumer LoRa business longer term?

Yes. I don't think -- so the way to think about it really is that there are different use cases and they're complementary. Actually, WiFi is a great complement to LoRa in many ways, thinking about how they operate and we even -- our latest platform, our LoRa Edge platform has WiFi sniffing function, but still needs WiFi routers and those type of systems to enable each use case. So really no impact at all. I would say if anything, WiFi and LoRa are becoming more complementary, and we're seeing more and more use cases where a high bandwidth WiFi capability plus LoRa for low power sensing and monitoring and things like that is really valuable to most use cases. So just much like 5G plus LoRa or Bluetooth plus LoRa, we don't really see that as a competitive issue. We see it more as a complementary.

Very helpful. Just one last one, if I may. On your triage opportunity, there is a competitor who appears to have one, maybe most of the early designs in PAM4, just given the fact that it's largely relegated to one hyperscale customer. First, do you expect more diversified cloud adoption in the U.S. of PAM4 interconnects inside the data center this year where you have the opportunity to be a strong number two provider? Second, you noted that Tri-Edge be more material for next year, but I was just hoping you could speak to your perhaps relative position and quantify the opportunity as the market transitions to both 200- and 400-gig solutions?

Yes. Well, we just -- so the first important thing is we just started to sample the Tri-Edge platform. So it is very early days for us, and I think that has to be noted, but we do have a pretty good position in the data center space, and we know the customers, and we know what's needed, and we have a very strong 100-gig position. And so now the question is moving those customers to use our platform for 200-gig and 400-gig. Initially for short reach and then for longer reach applications is the goal that we have. So -- but yes, we know that there's some work to do here, and it's not it's not a slam dunk and there's a lot of challenges, but we do think -- I mean, we made the strategic decision to go the analog PAM4 route because we felt that power was extremely important. We felt that the cost was very important. We felt in a lot of the use cases, latency was very important. And so that was the reason why we chose this path. And now we have to go make sure that our -- the fact that we are somewhat late to the PAM4 space, I think we have to kind of catch up that. And that's the goal this year is to get more design wins, and then next year, we should see that ramp up nicely. We'll see revenues this year, I just don't think there'll be huge revenues this year. I think next year will be much stronger.

Our next question comes from the line of Mitch Steves with RBC Capital Markets.

It looks like a pretty substantial beat raise here. But I had a question just more on kind of like '21 and '22, I think it's a big investor debate. So it sounds like you guys had some sort of view of what the back half looks like. So is there any way to least give us maybe a qualitative metric and how to model out the back half of the year, if it should be similar to July growth or something that's going to decelerate or accelerate? Anything that would help there, I think it would be very useful.

Yes, Mitch, I think from everything that we see right now, we still expect to have a decent second half of the year. However, there are still things out there that we know we were not in control of. There is a talk of a recession and things like that. And like Mohan said before with regards to COVID-19, nobody really knows how that whole thing is going to play out. So we still have -- we feel very good about the second half, but also just have a little bit of hint of caution around it. So my expectation would be that we'll probably see maybe some sort of a flattish to slightly up second half of the year.

Okay. That's very helpful. And then just a follow-up really quick on LoRa. You guys talked to $90 million to $120 million. It sounds like there wasn't much in April, hence, the pretty significant contribution to July. So when we look out the next, let's call it, '22 and '23, are you guys still sticking with kind of like the 40% or 50% growth rate because it's just infrastructure build out? Or has that change got pushed out in any meaningful way?

No. We'll stick with the 40% CAGR over the next 5 years, and it's really driven not only by our belief that these gateways that are being deployed, have a lot of use cases, there's plenty of capacity out there. We're really seeing the need for low-power sensing. So the low-power wide area network market, which is tiny today, we're starting to see it grow. There are clearly some emerging use cases. And I think, as I mentioned, if the smart home, smart consumer, smart logistics, smart asset tracking start to take off, which we believe they will, then I think we'll start to see a much more higher volume of connectivity to gateways, and that will drive the FY '22, FY '23 number and the 40% CAGR.

Our next question comes from the line of Hamed Khorsand with BWS Financial.

Just one question. Can you quantify the sales slippage from Q1 to Q2? And was it from all the supply constraints? And is it all in wireless and sensing?

Hamed, when you say sales slippage, so I think...

You disclosed in your 10-Q, towards the bottom of the 10-Q, you were talking about there was an impact to Q1 sales and you were shifting it to Q2 on the guidance. So I'm just trying to get clarity on that.

Yes. I think, I mean -- so yes, there are some -- we had some areas of supply constraint. For example, our facilities in Mexico for our High-Rel business was shut down, we couldn't build anything. So clearly, that's we have to -- and that's -- and we're not planning actually to start that facility again until June. So that's still shut down. So we can't ship anything from that. So that has some impact. It's fairly small, I would say, $3 million to $4 million. And then we have reduced capacity in our -- some of our operations in our protection business. Again, a few million dollars from the standpoint of capacity. And then Malaysia shut down, there's some constraints there. So it's broad, fairly numerous different sites and locations. But all in all, it adds up. And I don't think it's so significant that it's going to make a material difference in Q2. We should be able to pick most of it up.

Our next question comes from the line of Tore Svanberg with Stifel.

Yes. I just have two quick follow-ups. First of all, and just to sort of reconcile you had record POS, yet you're guiding about $30 million lower than your historical record on the top line. Is that, again, just you being careful with the economy is it some related to Huawei? Help us understand what that $30 million. And I know it's not perfect times, right, POS versus sales, but it's still a fairly large number.

Yes. I think all of the above, Tore. So some constraints in terms of, look, we're not going to guide, put any more Huawei shipment in the guide. I've done that in the last two quarters, and I think that's the way to do it because we just don't know what new regulations will come out or what restrictions will come out. So it doesn't really matter. So the guide assumes no more shipments into Huawei. That's the first one. I think the other aspect is the -- obviously, we have a lower turns percentage required in the quarter. But as I said, part of that is not really knowing enough about how COVID-19 is going to play out in the different regions. And from a demand standpoint, as North America and Europe come back and start to go back to work, whether we're going to see another virus impact, and we're going to be shut down again or is it going to continue to be okay. So some conservatism there. But in general, I would say that we feel good about our guidance and could we have guided more aggressively, I think probably we could have done, but I think with the supply constraints and the uncertainties in the demand, we still have 2 -- 1 of our sites shut down and another one at 50% capacity, things like that, it just -- you don't know -- you don't want to be too bullish out there, right?

Yes. That's fair. And one -- just the last question. It sounds like you're seeing quite a bit of activity on the health care side with LoRa. I was just wondering if you're seeing enough where you may actually dedicate sort of a business unit towards LoRa Smart Healthcare. It seems like a lot of companies are sort of using the health care market as a big opportunity here in the downturn. Just wondering if you guys are being a bit more dedicated to health care there, too, with LoRa?

Yes. That's a good question, Tore, and I'm not sure of the answer to that yet. We are starting to see use cases, as I've said, and we've got customers deploying LoRa around the world to help with COVID-19. I said -- I mentioned contact tracing, remote temperature sensing, LoRa is perfect for that and occupancy management and smart quarantining. But I'm more of a believer of just kind of thinking through strategically whether longer-term it makes sense or whether it's the short-term opportunity. The nice thing is I think we have some good partners working on this, and they'll start to indicate to us if LoRa is really being successful in this area. And that will then probably drive kind of a separate set of strategic thinking in that area. Our new LoRa Edge platform that we just brought to market, we just announced, which has both WiFi sniffing, GNSS sniffing and the LoRa functions. So 3 separate radios, all in the same chip. Actually, we designed it, and the focus is on smart logistics and asset tracking, which we think is going to be a huge market. But that same platform, I think, has got a really good opportunity in the smart health market. So we'll see, especially for contact tracing and things like that. So we'll see how it plays out, but it's one of those areas that we have to keep a close eye on to see if the market is going to adopt it and accelerate.

Our final question comes from the line of Christopher Rolland with Susquehanna.

And just kind of a follow-up also to Tore. On the booking side of things, we've kind of noticed a correlation between book-to-bill and Huawei previously as a customer from some of your competitors. I think you guys said you had a strong book-to-bill. I don't know if you guys would maybe want to describe what that is a little bit further? Was it 1.3 or above? And then just as you think about those extra marginal bookings, were they long dated? Are they cancelable? Or is there anything about that, that's different than otherwise?

So Chris, our book-to-bill was pretty much of the sort of the range that you have referred to. And the bookings have been strong, like Mohan said on the call, we have actually continued. And I think one of the things that we do consistently is to track how much cancellations we're getting, how much push out requests that we're getting. And so far, we have not seen anything that is apart from the ordinary. We've been very pleased with all the indications that we're seeing is that the bookings are really something that is being driven by actual demand.

Yes. And I would point out that a lot of the strength, as I mentioned, was the booking strength has been in infrastructure and IoT related areas. We're not seeing the same in some other segments. So that -- and within the infrastructure, it's been fairly broad. So normally, you see 1 or 2 areas where you see a lot of strength, but it's fairly broad within infrastructure, I would say, it's base station, it's data center, it's PON, it's a broad communication and IoT.

As there are no further questions left at this time, I would like to turn the floor back over to management for any closing remarks.

In closing, COVID-19 has provided us all with its fair share of challenges. And I want to thank all of our employees and partners for their efforts to quickly adjust to the challenges faced from this global pandemic. They have adapted and responded and leveraged the infrastructure we have built over the last several years, resulting in limited impact to our business operations. We believe our diverse product offering, balanced end market and balanced geographical approach, along with our strong customer relationships, should help us outperform our peers in these uncertain times. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you.

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