Greetings. Welcome to Semtech Corporation Conference Call to discuss the Fourth Quarter and Fiscal year 2022 Financial Results. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer and Emeka Chukwu, Semtech's Executive Vice President and Chief Financial Officer. Please note this conference is being recorded. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. I will now turn the call over to Semtech's Executive Vice President and Chief Financial Officer, Emeka Chukwu.

Thank you, Alex. 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. All references made to financials results in my prepared remarks and Mohan's prepared remarks during this call will refer to non-GAAP financial measures, unless otherwise noted. A 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 financial measures are included in today's press release. In Q4 fiscal '22, the company delivered net sales of $190.6 million, a decrease of 2% sequentially and an increase of 15% year-over-year and was once again above the midpoint of our guidance. Fiscal '22 revenues grew 24% to a record $740.9 million while EPS grew 49% to a record $2.61 or more than two times the rate of net revenues growth. The strength of the secular drivers behind our growth engines contributed to the strong net sales performers, despite the challenges presented by COVID and supply constraints. In Q4, shipment into Asia, North America and Europe represented 78%, 13% and 9% respectively. While this represented the shipped to address for our distributors and customers, we estimate…

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year '22 performance by product group, discuss our fiscal year '22 performance and then provide our outlook for Q1 of fiscal year '23. In Q4 of fiscal year '22 net revenues of $190.6 million represented a 2.2% sequential decline, which was much better than our typical seasonality of 5% to 10% down. We posted record non-GAAP gross margins of 64.5% and non-GAAP earnings per diluted share of $0.70. In Q4 fiscal year '22, our signal integrity product group grew 21% over the prior year and achieved another quarterly record and represented 39% of total revenues. Record demand from our PON business contributed to the growth. Our data center demand remains soft as customers managed yearend inventory. However, Q4 data center bookings increased significantly in the quarter and we are expecting data center revenues to rebound nicely in Q1 led by growth from our Tri-Edge short reach PAM4 platform. We have continued to attain new Tri-Edge design wins across multiple geographies in a 100-gig, 200-gig and 400-gig PAM4 optical modules. In FY '22 revenue from our Tri-Edge platform increased over 700% to approximately $14 million and we now expect our data center Tri-Edge revenues to triple in FY '23 as more customers move to full production and we increase our market share over DSP solutions in the 200-gig and 400-gig PAM4 segments. In addition, we are now sampling our long reach Tri-Edge platform targeted at 200-gig FR4 optical modules. These new parts, approximately double our SAM in the hyperscale data center market. We are confident that Tri-Edge's ultralow power, low cost and low latency together with the fiber edge higher performance will enable us to continue to grow our hyperscale data center business over the next few years. In…

[Operator instructions] Our first question comes from the line of Tore Svanberg with Stifel. Please proceed with your question.

Yes. Thank you, Mohan and Emeka and congratulations on all the record metrics quite a few of them. First question you're expecting gross margin to expand 100 basis points to 200 basis points this year, and you attributed that primarily to mix. Should we infer by that that the signal integrity group will show the growth this this year?

Sorry, can you repeat the last section of your question?

Yeah. Given your comment about mix and gross margin expanding this year, should we infer by that, that the signal integrity group will show the strongest growth this year?

Will show the strongest growth? I think…

Right.

I think we do expect all of the groups to grow very nicely. The LoRa enabled is still going to probably lead the way in terms of absolute dollars of growth. Signal integrity with our tri edge platform and our 10 gig platform should grow very nicely for us. I don't know that it's going to be signal integrity, but I think both LoRa and the Tri-Edge the 10 gig PON, they're probably going to lead the way in terms of year over year growth.

And the ITA business in protection Tore. So as we get more broad-based protection business, that certainly also drives high gross margins.

Very good. And Mohan, this time around, you gave us a quarterly revenue for LoRa and you also gave us a number for the growth in PICO cell deployments. I'm assuming that that's sort of an indication that the technology's now really moving into more sort of the consumer world, but yeah, I was just hoping you could elaborate on, why decided to give us those two metrics this call,

Well, the PICO cell gateways, I've been giving metrics out on gateway deployments, but I felt now it's gotten to a lot such a larger number that will start to break out a little bit the PICO cells and the macro. The macro does tend to be more industrial, smart utilities and smart cities and smart buildings. It's not to say the PICO cell doesn't go into those type of segments, but a large part of the volume is driven by smart home and smart campus. So I want you to provide that color because we do get that question a lot. And then I think in terms of the quarterly number, we won't give out the quarterly number. We'll continue to talk about 40% CAGR, but, obviously we'll try to give an indication of how we're doing against that and of course, for the annual number, we said that we were going to grow at least 40%. We grew 53% and so, we wanted to share that information with you.

Thank you. Our next question comes from the line of Tristan Gerra with Baird & Co. Please proceed with your question.

Hi, good afternoon. In terms of what the pipeline. So I think the numbers you provided, show over 30% increase year over year. So is that how we should be looking at LoRa revenue for this year as well and also if you could remind us the exposure that you have in China for your LoRa business, which I know has been tracking in say 55% range of revenue in prior quarter last year.

Yeah, let me start with that Tristan. China is about 50% of the revenue. In terms of opportunity pipeline, it's about 30%. It's much more balanced as we've been saying the pipeline now North America is also in that range, but from a revenue standpoint, still 50% out is, is China. And then in terms of the opportunity funnel and revenue and gateway deployments, you really can't correlate these because their timing is different. When we ship products, we ship into distributors. When distributors ship into module providers, module guys, sometimes ship into the OEMs and then the OEMs build hardware and then deployments of networks. So part of the reason why, we give out these metrics, is that the timing of these deployments and when we see the actual revenues versus when the deployments actually occur, it's different and it's difficult for us to exactly determine the exact timing. So we give an indication that each of the areas are growing nicely, which I think is what's important.

Okay, great. And then for my follow up, wanted to talk a little bit about what's what you're seeing in China, given that about half of your consumer is smartphone. And most of that I believe is China. Now you've said that you expect a consumer to rebound, what are you seeing in terms of inventories in your China smartphone business and what is the risk that those inventory -- this inventory correction continues to happen over the next couple of quarters? And is that also something that could potentially impact your LoRa business? I understand LoRa has come down in China as a percentage of the mix, but it's still 50%. So is that kind of a near term headwind that you can think of for the next few quarters?

Well, so China demand is obviously very important to us still for all areas of the business, all product groups and as we monitor it today, demand is still strong. Consumption is strong. There's nothing to indicate any weakness in our particular segments. I think with the consumer demand I mentioned Q4 typically is down and was down. And so in the second and the second half of FY '22 was not strong for consumer. And bookings have increased -- have improved. So we are expecting a little bit of a rebound in the first half. I think the second half is the big question. I think not only for China, but really for the rest of the world in terms of demand and all the macro events, but certainly for the first half, we are not anticipating any issues.

Thank you. Our next question comes in the line of Craig Ellis with B. Riley. Please proceed with your question.

Yeah, thanks for taking the questions I wanted to come back and follow up on LoRa, and do it this way, Mohan. So if we were to rewind the clock about a year and think about the momentum that LoRa has the gained over the last four quarters, it really did seem to build each quarter. And then you had the very, very strong fiscal fourth quarter. So my question is this. I know the company has had for some time and retains the 40% growth target, but given the level we're exiting fiscal fourth, quarter '22, why wouldn't we be seeing the potential for potentially materially above 40% year on your growth in fiscal '23 perhaps to the same degree that we did last year?

No reason Craig, other than, it's difficult to time exactly obviously the revenues, as I mentioned, the momentum sometimes in terms of network deployments and used cases being deployed gets ahead of when end nodes are being deployed and things like that. So, we had anticipated 40% growth, this last fiscal year, FY '22. Obviously, we did 53%. So we did significantly higher. There's nothing to suggest that, we won't have another similar year, but I think in terms of the outlook for the next three to five years, 40% is a very good number that we feel good about given the different types of metrics and how the opportunity funnel is laying out. And remember our opportunities funnel we look at is real design opportunities, and we're looking for the conversion of those opportunities into the, into real deployments. And that's really what drives our revenue model.

Got it very helpful, And then I don't know if it's you or Emeka that I should congratulate for having a quarters revenue guidance require zero turns, but nice to see that kind of backlog coverage guys, but Emeka, I wanted to flip it to you and actually talk about another line. It so very helpful to get the cal or excuse me, the fiscal '23 gross margin color that Tore asked about, but my question's this. So if we look at the last four or five quarters, we've had very material, sequential, gross margin improvement, and, and the color for fiscal '23 would imply I think just 20 to 30 basis points from here through the year. So what's happening within mix that can cause gross margins to expand, so materially over the trailing four or five quarters. And, and why would it not stay on that pace? And, and instead moderate to something that's more implied in the guidance? Thank you.

Yeah. So so Craig, I think we've been saying this for a while that a lot of our investments have been going into markets that we expect to grow very fast and that we also expect to have very high gross margins. And it is very pleasing to actually see that beginning to play out the LoRa-enabled, tank export the protection, it industrial businesses. That is really very pleasing to see. As we go forward in FY '22, we saw about 180 basis points of gross margin expansion year over year, there is nothing that says that we cannot duplicate that are getting FY '23. And that's why the guidance for a hundred to 200 basis point, but we have to see, we have to see, the expectation is that we will continue to see gross margin expansion, but we just have to see how things play out. Especially there are still things out there, I mean, with the war in Ukraine, we don't know what the impact is going to be on the supply chain that is already filling a lot of heat and things like that, so, but we'll see, but we're very hopeful and we're very excited with our gross margin story.

Thank you. Our next question comes on the line of Quinn Bolton with Needham & Company. Please proceed with your question.

Hey guys, I'll offer my congratulations as well, and I guess really sort of a follow to [indiscernible] question on LoRa. If I just do the math you gave us the full year, you gave us the fourth quarter. It, it looks like LoRa in the fourth quarter, was 41.7. And for the, the average of the first three quarters of the year, it was closer to 31. So it looks like there was a pretty dramatic acceleration in the, in the LoRa business in the fourth quarter. And I'm just wondering Mohan, if you can give us some sense, is that driven by just continued gateway deployments? Are you seeing a particular use case? Is it end notes? what, what really drove that acceleration in the fourth quarter?

Yeah, I would say at this moment, Quinn, it's more the infrastructure. So more gate ways at the moment driving it, but I think that's the good news, which is for us that infrastructure's being deployed. And then, we'd expect end node to follow. The timing of which is, is difficult to call. But yeah, that, this is not unexpected. I mean, if you go back a couple of years ago, we were running it, $10 million a quarter, and now we're running, closer to $40 million a quarter. And so, it's, it's been trending upwards and, and it's been trending upwards not by a mistake. I mean, it's infrastructure going in gateways, macro gateways deployments, real IoT use cases. We're seeing a LoRa ecosystem really expand. We're seeing LoRa Alliance has increased the number of companies in the Alliance, but also the types of companies. We now have, Microsoft Azure, Amazon really big players in the ecosystem that are now starting to drive use cases as well for us. So the whole machine is moving in the right direction. We set, it is going to happen. It's just a question of time. And now, as we're starting to see it, it's just really translating into, into deployments. And, and remember for us when we generate revenue, when we ship product into our into our customers, right. But the deployments take a little bit longer. And so we are monitoring that. And then the use cases get deployed and good thing is that really, if you look across the globe now LoRa is very well. I mentioned the ITU LoRaWAN being standard now in the, I recognized by ITU, that's really significant because now the whole globe can use LoRaWAN and knowing that there's interoperability there, we're starting to see roaming agreements across these network. the pico-cell, I pointed that out because it drives different types of use cases, some of which we've been talking about for a while, like tags and things like that, but there hasn't been the infrastructure in place, and I think that's starting to change now. So very exciting to see that. Yeah.

And, and I guess that follow up to that was, I believe you had mentioned two applications, sidewalk, and helium network driving some of those gateway deployments in fiscal '22. Do you have line of sight into sort of the end nodes? Maybe not the exact timing of the ramp, but, but do you feel confident that that those end nodes are being designed and it's sort of just a matter of, of time before we start to see, a, a pretty meaningful pickup in the end notes on those particular networks?

Well, what I know Quinn is that there would be no end nodes if we don't have the infrastructure in place. So now the infrastructure now, the infrastructure is going in and the gateways are going in and starting to get deployed. And sensors are being developed for these networks. I feel pretty confident about it. But, I think it's going to take a few years. I don't think it's something that's going to happen overnight. And this is the type of you know these are type of use cases that can drive very, very high volumes very quickly. In other cases, it might take some time. So as I mentioned, a lot of use cases need density of network. And so by having these type of networks and there's new roaming agreements come into place, it does drive different use cases. So, so that's the exciting factor that I think we yet to see, which I think we will see over the next couple of years here.

Thank you. Our next question comes from the line of Richard Schafer with Oppenheimer. Please proceed with your question.

Yes, thanks. Excuse me. I'll, I'll have my congratulations guys. Just a, maybe a, a rather follow up on, on LoRa, but Mohan, I think you you've spoken in the past about your long-term plans for that business. And you talked about moving to more of a licensing and royalty type model, and I was just curious if there were, sort of what metrics, you need to see to consider opening LoRa up, as a standard and sort of making that shift away from, Silicon as your primary source of revenue for LoRa. I think it's correct me if I'm wrong. I think still over 90% or so of, of, of, of revenue still coming from the, on the chip side. So is that sort of when we get to your $500 million kind of target in the next sort of three or four years, or just curious kind of how you're, how you're thinking about that business?

So, so yeah, Rick, that's a good question. And first of all, yeah, most of the revenue is today just chip sales. We are starting to see IP royalties come in now a little bit. The key driver is the cloud services revenues, which we just started. It really has, it's just the early days, but we, I, I mentioned on my prepared remarks that we have signed a relationship with Tencent in China. We're starting to look at more relationships to see if we can get our cloud services revenues based on our LoRa edge chip platform starting to really grow. And the goal is to get that to $100 million of recurring revenues is that's what I've said. We then trigger a discussion about, you know is that a business that we can start to look at the chip business and the, and the cloud separately, but I think we're a ways off that yet at least three years, but probably more like five years.

Oh, thanks for that. And then on, Tri-Edge, thanks a lot for the color on that business. I mean, $40 million $45 million this year, I think you said expected. That's, that business seems to really be sort of taken off. I know we've talked about it the last, last couple years. Were there any like obvious hurdles that just needed to that needed to be overcome? Are we sort of at that tipping point now for that business and, and how do you look at it in terms of like, how do you size the market opportunity there, I guess for, for analog PAM4? Thanks.

Yeah. Well, the good news here is that, we were we didn't really have any PAM4 products until Tri-Edge. And so, we were a little bit behind the DSP solutions out there. And so it's all share gains for us in this space. I think the way I look at it. And, and so with our first 50-gig PAM4 short reach products, we knew we had limitations on reach, but we knew that also the power consumption is going to be an extremely beneficial to data center customers that cared about power and care about cost. And, and so we're starting to see that momentum now in the short reach side. And as I mentioned, we're just sampling now the longer reach products for 200-gig FR four modules, which is two kilometer kind of range which really opens up the whole data center space for us. And, and we're excited by that. And obviously we have quite a few developments in this area as well, so more to come, but yeah, very exciting and we expect a data center to be quite strong for us over the next few years.

Thank you. Our next question comes from the line of Gary Mobley with Wells Fargo. Please proceed with your question.

Hey guys, thanks for taking my question. If I look at the midpoint of your Q1 revenue guide, it's about 4.9% sequential growth. I'm curious to know if that's benefited at all from point of purchase increase, or would you expect a commensurate increase in your point of sale as well?

So point of sale also records for us at the moment and, and we are expecting another record in Q1. So yeah, I think your question Gary was tied to ASP increases and, at the moment way we're thinking about it was that any type of cost increases we get will pass on to our customers. But yes, we do expect POS to increase in correlation with that.

Yeah. I mean, the, I guess it would encapsulate some, some price increases that I was really more so asking if it was a function of a distributor inventory increasing?

Oh, no, I, so I think, our POS is very strong. I think we mentioned on the call, it's, it's a record and, cycle times supply chain cycle, the times have not changed. They, they are very extended at the moment. And so, you'll see our internal inventory has increased. I expect our channel inventory to increase a little bit, but at the end of the day, as long as POS is also increasing, in other words, the consumption is increasing, then I think we're in good shape.

Okay. And did you just to clarify, did you say bookings were up 35% quarter-to-quarter, and it related to supply I presume with a 13 day increase quarter-to-quarter in your, in your DOI and, and with a running above, historical levels that you're really not dealing with any supply constraints, and if that's the situation, how have you guys been able to escape this while there's everybody else in the industry is dealing with it?

Yeah. So if I go back a couple of years here probably prior to the pandemic we had actually were anticipating to start seeing the ramp of, of some of these new product platforms that we were seeing now. So we did pay attention to our supply chain and the, in some cases we make sure we had a second sources and all that stuff all lined up. And so we are very fortunate in that way that, that when the pandemic hit, we're already in a very good position with regards to the supply chain. So, we've, we, we we've managed that very well. I think, it doesn't mean that we don't have any supply constraints, all, that little pockets here and there, but on the average. I think we are, we are in a very good position with where our inventory levels are. And I'm very pleased to see that we are able to supply, to support a lot of the strong demand that we're seeing at this point.

Thank you. Our next question is a follow up from Tore Svanberg with Stifel. Please proceed with your question.

Yes. Thank you. I just had a follow up questions on all the products that you introduced at [indiscernible]. It was a pretty impressive line-up. And, and specifically in relation to PON that market has always been a bit volatile, especially because of China, but I think this is, this is going to be your second consecutive year with very strong growth. How should we think about that market and, and your new products for that market as we go into, fiscal '24?

Yeah, I would say Tore your observation is exactly right. PON has become a totally different space. Now it's a, it's a totally different market. And, and I think what's really driven that is the pandemic. When we go look at the pandemic and what drove more access bandwidth, there were clearly bottlenecks in the access side. And so PON is a really good way to solve that problem. And I think China has demonstrated that and continues to demonstrate that, but the rest of the world has also now started to accept that. And so we're seeing North America, Europe, and India, as I mentioned, and other regions starting to really look at PON as their, as the key access bandwidth. And, and so we've seen an acceleration of gig PON, we've seen an acceleration of 10-gig PON, obviously that's also helping gross margins and we are playing a obviously in both OLT end and the ONU side, and then the other really intriguing thing for us, which is very exciting for us is the expansion into 25-gig PON and 25-gig PON. The modules, as I mentioned on my prepared remarks will likely need CDR functionality as well, So that opens up a, a more content for us. We're obviously leaders in the PMD side, we're, one of the leaders in CDRs. And so combination of the two in PON gives us a very, very good position there and we're even, I mentioned we, you even have developments at 50-gig ponds. So, so very exciting, generally, I, I would say good space to be in now and probably for the next five to 10 years. This is a space that is going to get a lot of investment in. I suspect

Very good Mohan glad again. Thank you,

Ladies and gentlemen, we have reached the end of, of the question and answer session, and I will now turn a call over to Mohan Maheswaran for closing remarks

In closing, we were pleased with our strong Q4 and record fiscal year '22 results, despite the challenging pandemic and supply chain environment, we believe our multi-sourcing initiatives and our investments in infrastructure and tools has enabled us to maintain best-in-class business operations. Our key growth engines targeted at broadband infrastructure, creating a smarter planet and enabling mobility are all doing very well. And we expect FY 23 to deliver another record year for Semtech. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day. Update?