Good day and thank you for standing by. Welcome to the Synaptics Inc. Fourth Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Munjal Shah, Vice President of Investor Relations. Please go ahead.

Thank you. Good afternoon. And thank you for joining us today on Synaptics’ fourth quarter fiscal 2023 conference call. My name is Munjal Shah and I am the Head of Investor Relations. With me on today’s call are Michael Hurlston, our President and CEO; and Dean Butler, our CFO. This call is also being broadcast live over the web and can be accessed from the Investor Relations section of the company’s website at synaptics.com. In addition to a supplemental slide presentation, we have also posted a copy of these prepared remarks on our investor relations website. In addition to the company’s GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition related costs and certain other non-cash or recurring or non-recurring items. Please refer to the press release issued after market close today for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the investor relations section of the -- at synaptics.com. Additionally, we would like to recommend you -- remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements give our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. Although Synaptics believes our estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company’s forward-looking statements. We refer you to the company’s current and periodic reports filed with the SEC, including our most recent annual report on Form 10-K and quarterly report on Form 10-Q, for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statement. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

Thanks, Munjal. I’d like to welcome everyone to today’s call. We completed a difficult fiscal year where excess inventory led to topline revenue challenges. The good news is that we believe revenue has hit bottom. We can clearly measure inventory reductions in the channel and are seeing far fewer push-out requests. While some areas of our business are quarters away from a pronounced upturn, we are starting to see a return to normalcy in others, specifically PC and Mobile. During the quarter, we opportunistically shifted our capital allocation to share buybacks and repurchased approximately 1 million shares adding to the 1 million purchased earlier in the fiscal year, totaling out to about 5% of our shares outstanding. Before providing our normal quarterly update, let me highlight the key aspects of our recently announced agreement with Broadcom. Most important, we get critical Wi-Fi7 technology as part of the transaction, which represents a 30% ASP uplift over Wi-Fi6. It enables us to accelerate the high-performance part of our Wi-Fi/Bluetooth combo roadmap, allowing us to sample Wi-Fi7 products by the end of 2024. The agreement not only stretches our lead in high-performance Wi-Fi for IoT applications, but also allows us to focus our internal resources on the more critical low-power broad market part of the roadmap. In addition, the transaction gives us Bluetooth 6.0 and Bluetooth Enterprise, two important pieces that were on our technology roadmap. Finally, it gives us some market-leading devices to sell into our field of use, a critical Bluetooth chip for enterprise headsets, a Bluetooth standalone device that opens new markets for us, and lastly, a Wi-Fi6E device that complements our existing high performance IoT. As part of the agreement, we extend the exclusivity of our license to IoT markets by an additional three years. Coupled with our internal…

Thanks Michael, and good afternoon to everyone. I’ll start with a review of our financial results for the recently completed fiscal year and then provide our current outlook. We completed our fiscal year 2023 with net revenue of $1.36 billion, which was down 22%, compared to $1.74 billion in the prior year, largely due to a 36% year-over-year decline in our Mobile and PC product groups and a 14% decline in our IoT products. Nearly all our market areas were affected by demand and inventory corrections throughout the fiscal year. Despite this revenue decline, we maintained a profitable business with non-GAAP gross margin at 60.1%, 10 basis points higher compared to prior year, as our mix continued be dominated by our IoT products. GAAP net income for the completed fiscal year was $73.6 million or $1.83 per diluted share, compared to $257.5 million or $6.33 per diluted share in the prior year. Non-GAAP net income for the completed fiscal year was $326.4 million or $8.12 per diluted share, compared to $551.2 million or $13.54 per diluted share in the prior year. Revenue for the recently completed June quarter was $227.3 million, above midpoint of our guidance. Revenue from IoT, PC and Mobile were 58%, 19% and 23%, respectively. This was largely in line with our prior expectations, with our IoT products ending higher than forecast. Year-over-year, consolidated June quarter revenue was down 52% as the June 2023 quarter is now directly compared to our June 2022 peak revenue period of $476 million. June quarter IoT product revenue was down 60% year-over-year and down 43% sequentially reflecting soft demand across consumer and enterprise end markets and continued inventory depletion as previously discussed. In PC, our June quarter revenue was down 21% sequentially and down 48% year-over-year. We expect the June quarter…

Thank you. [Operator Instructions] Our first question is from Kevin Cassidy of Rosenblatt Securities.

Thanks for taking my question. Just a couple of questions. First one is, last quarter, you thought you’re under shipping demand by $75 million to $125 million. Can -- what was it for the June quarter? How much under shipping did you do and are you expecting more in the September quarter?

Yeah. Kevin, you remember that correctly? We still maintain, that is still approximate right, in the June quarter actually we landed about in that expectation. And like we said last quarter, we continue to range consistent this quarter, we think that range probably continues to persist throughout the calendar 2024 that’s probably consistent.

Okay. Excuse me. And the new agreement with Broadcom, expect it will be just as successful as the last agreement. But this is IP-only, and I guess, the elephant in the room is what was the cost or what was the finances behind it?

Yeah. Kevin, it was $130 million. So we felt like we got a very good price on the deal, and it encompasses a bunch of things. As we outlined it, there are a few finished chips that they’ve done since our last deal concluded that come to our side for use in our field of use. There’s the Wi-Fi7 technology that we talked about and then a couple pieces of Bluetooth technology, as well as extension of the deal. So we feel like, all of those elements together, this is a -- obviously, Broadcom likes to transaction, but we really liked the transaction. We think it’s a good price for the all the elements that we got as part of this.

Yeah. I agree with that. That’s much lower than I was expecting $130 million. Congratulations.

Thanks, Kevin.

Thank you. Please hold for our next question. Our next question comes from Christopher Rolland of Susquehanna International Group.

Thanks, guys. So I didn’t quite follow everything on the channel inventory side. I wanted to know where you thought they were most acute and where they might have normalized. It sounded like PC and Mobile was high, but also you mentioned maybe enterprise, which I thought skewed towards IoT. So if you could put that all together? And then I think you mentioned some module deal on conductivity, where someone was scrapping parts and any commentary there would be great, too? Thanks.

Yeah. A couple of couple pieces and I’ll have Dean follow. So number one, in terms of inventory, I would say, we still have a couple of quarters of burn to go through because of the over shipment problem. But that burn is now skewed to IoT. So we feel a lot better about where PC and Mobile inventories are. We’re feeling better about some aspects of IoT, but as you highlight in the question, enterprise which accompanies -- compasses things like our documentation business, some enterprise telephony, there’s some issues in set-top box, we are still projecting that were a couple of quarters away from burning through all of that inventory. So pretty good PC, Mobile, IoT a bit of a mixed bag, but IoT, for the most part is where the issue is and thus, as Dean characterized the overall drag on gross margin.

Okay.

Yeah. So I’ll just take the last part of your question, Chris, which was around the scrap at a large customer. So we did enter into a one-time scrap agreement, which is a cost of goods charge to scrap a bunch of parts that are specific for their use. Does that answer is happy for you?

Okay. Yeah.

It was on a module. I mean, your question sort of led to a module, it was a separate non-module customer. We are burning inventory in our large module customer. That’s more of an inventory situation and then as Dean talked to the scrap situation is a direct customer.

Yeah. I see now. Okay. Thank you for that clarification. And then pricing pressure, was that -- I wasn’t quite sure what that, was that just Automotive Touch, was that all of Touch when you were talking about pricing pressure and then pricing pressure, are there other parts of your business where you’ve seen this, for example, in conductivity with this extra kind of inventory out there? I think everyone on the conductivity side has seen a downtick with over inventorying. Are you seeing pricing pressures there or any other part of your business? Thanks.

Yeah. So, Chris, the comment in the prepared remarks was very specifically pointed at automotive and we’re certainly seeing some pricing pressure in our automotive business, which is actually held up really, really well for us, but these are designs that would be shipping in multiple years in order to bid and win on those designs. We’re seeing quite a bit of price pressure. But to your question, we’re certainly seeing some pricing pressure, as you alluded to on Wi-Fi and a bit on our Touch technology. But overall, remember as we’ve sort of characterized on previous calls, our IoT business is largely pockets of strength, where we were sole sourced in many instances and we have some pricing power in areas that are more competitive, like the Wi-Fi, like the Touch and Mobile, we’re definitely seeing some pricing pressure.

Fantastic. Thank you, Michael.

Thank you. Please hold for our next question. Our next question comes from Nick Doyle of Needham.

Hey, guys. Thanks for taking my question. For the COGS charge. Did you guys quantify the impact to the margins and do you anticipate any further write downs for other parts?

Yeah. Nick, so we didn’t quantify, I mean, there’s, obviously, lots of moving pieces. I wouldn’t focus so much on what the COGS charge is for the scrap portion, the largest piece of the movement around gross margin, which I think is the thing that you want to just sort of get focused on is really around the imbalance of the mix of the products, specifically with some of the enterprise focused customers actually driving that mix, even within IoT a little bit more unfavorable. So that is probably what I would sort of guide you to.

Appreciate that. Yeah. I was trying to get a little sense there. When you’re talking about the Broadcom deal, there was a line that said, you’re trying to focus on the broad market part of the roadmap, can you just expand on what products that is?

Yeah. I mean, today, our product line is very much targeted to high performance. I think we’ve discussed it on -- in previous calls, where, for the most part, we’re moving video from one device to another and that requires very high bandwidth, it requires quite high performance. Where we’re aiming our roadmap over the next couple of years is a more basic connectivity, simple point-to-point connections, whether that be over Bluetooth, whether that be over Zigbee technology, whether that be over Wi-Fi, there is a kind of a margin rich and high TAM area there that we have totally not tackled. So our engineering investment right now is very much geared toward retuning our roadmap to go after that broad market. Eventually, we think that there’s going to be opportunities for us to bring in our SOCs, our processors and either through integration or through a bundling type of scenario where you can pull through a lot more content in that broad market area.

Thank you. Please hold for our next question. Our next question comes from Hadi Orabi of TD Cowen. Please go ahead.

Hey, guys. This is Hadi for Chris. Congrats on signing the deal with Samsung. Pretty interesting. It seems that the three has been trending more towards foldable phones, especially in Android. So can you remind us about Synaptics opportunity there, like, what percentage of mobile revenues go to foldable phones and whether the competitive environment is different there than regular phones? And I have another question please.

Yeah. Hadi, I don’t know if we actually break out the specific revenue that’s attached to a foldable. I don’t know if I have it on hand. But what I would say is, we’re very much on the flexible OLED displays, which are 100% of the fold market and of the flip market, if you will. So more and more attach is coming into the -- flexible OLED is becoming a much bigger portion of the market and that’s why I think we’re doing unusually well. On the Samsung deal, in particular, as we mentioned on the -- in the prepared remarks, we actually ship to Touch ICs, one for the front panel and then one is it flips out and opens up into the full panel. We’re not in the fold today. It represents an opportunity for us as we look out at the landscape and we agree that there definitely is a trend line to more of these foldable phones, which play to our strengths, for sure.

Got it. Thanks, Michael. And just on the Bluetooth 6 IP. First, just clarification, do you have a standalone Bluetooth product today for the Bluetooth 5? And second, you talked about Bluetooth 6 expanding product line to the enterprise handset market. Are there any other new markets that Wi-Fi7 and Bluetooth 6 can open for you, like in healthcare, industrial, et cetera? Thanks.

Yeah. I mean, the -- your question is a good one. So today before this particular transaction, we had no standalone Bluetooth offering. We still need to work on the Bluetooth engine to make it truly, truly competitive. We can ship into certain markets today. HIDs, human interface devices, we can ship into remote controls. We can ship into -- it opens up a bunch of new markets for us. But to get into industrial and into medical and some of these other things, we are -- this is where we intend to go. We have now with the Bluetooth 6 technology. We’re already much closer to our competitors today than we were before this deal. So we’ve actually really close the gap on Bluetooth. We will continue to evolve that and our intent is to open up some of the markets that you alluded to, the industrial, medical, gaming, there’s a lot of things that we think we can do with standalone Bluetooth that today we do not do.

Thanks, Michael. And just a quick follow-up, competitors in this market would be Silicon Labs and Nordic Semi, right?

Yeah. Perfect. Perfect compare, Hadi.

Got it. Thanks a lot, Michael.

Thank you. Please hold for our next question. Our next question comes from Gary Mobley of Wells Fargo.

Hey, guys. Thanks for taking my question. Dean, in your earlier comments, you mentioned that you made shift to the actual customer end demand by, I believe you said the fourth calendar quarter of 2024. Did you mean the fourth calendar -- fourth of fiscal year 2024, because I think that’s what you previously communicated? And I just want to confirm, what’s normal when you actually begin to ship to actual customer end demand? Is that roughly in the ballpark of $325 million, $330 million in revenue?

Yeah. Gary, I think you have a right. I think it’s yet to be seen exactly what that trajectory looks like and what quarter marks that you’ll return to sort of full, normal end consumption. We’re already starting to see we’re getting pretty darn close on the PC side and the Mobile side. It looks like a lot of that inventory is sort of now work through. PCs specifically looks like that’s probably behind us. Mobile still sort of a little bit volatile, bumping around a bit. IoT, though, is going to take a few more quarters, as you indicate, Gary, and like we talked about last quarter on -- on last quarters call. So I think what you’ll see is inventory burn, right for the next couple of quarters somewhere around the current range. And then you’ll start to see as inventory sort of gets depleted, topline start moving back as you approach end of through -- end demand over the subsequent quarters.

Okay. Thanks, Dean. With respect to gross margin. So your guidance implies that you’re going to run about 350 basis points below your long-term view and I get the mix within the mix headwind in IoT. But is there also a factor playing here in that, maybe it’s a little bit more difficult to pass along price inflation from your foundry partners. And in a world where your enterprise IoT business bounces back to its previous level? Do you still feel see 57% as a long-term gross margin target?

Yeah. And I don’t even think it’s that necessarily far out. Where we are today, midpoint of the guide, actually, I think, is the bottom of the gross margin. It -- this incorporates probably the worst amount of mix that we’ve been confronted with, specifically these enterprise sort of facing customers, which come with a little bit better gross margin for the company. We will actually move back up toward that long-term rate of 37% gross margin, really as we get through this inventory burn and as the mix sort of writes itself. There’s actually an interesting chart, if you want to take a look at it, Gary, in our supplemental slides…

Slides.

… posted on the investor website, that actually gives a history of sort of how gross margins do, in fact track with the product mix of the company. And therefore, I’m not really concerned about gross margins and sort of their return as IoT mix returns.

Okay. And as far as offsetting higher founder quotes, I’ve imagined, that’s not much of an issue any more or less of an issue, but maybe you can just talk about that, that ability to pass along price increases?

Yeah. I mean, it’s lesser, Gary. And I think that sort of coming from our historic 60% run rate to 57% contemplates that. So I agree with what you said. We were running I think for the year, Dean gave the number of 60%, as we think about long-term, 57% contemplates input prices changing and it contemplates a much less ability. We do have pricing power, as I mentioned to a previous questioner, but I think our ability to pass on a significant majority of those increases, those days have gone.

Thanks, guys. Appreciate it.

Yeah. Thanks, Gary.

Thank you. Please hold for our next question. Our next question comes from Martin Yang of OpCo.

Hi. Good afternoon. Thank you for taking the question. My question is on a sign of recovery and the timing for recovery across different sectors. Definitely understand the PC dynamic where it could stay in bottom for longer time. Do you see mobile recovering from the current bottom are normalized inventory much faster than the other two?

Yeah. Martin, I mean, I think, what we were trying to get people oriented around is Mobile and PC have largely recovered. I think in PC we’ve seen inventory levels now close to normal. The complication is that the demand particularly from enterprise has not yet picked up. We forecasted picking up in the in the fourth quarter and then early next year, but it has not yet picked up. So although inventory is in pretty good shape. I think a demand still remains a question and that’s largely hinging on enterprise spending. In Mobile, we had a good quarter this quarter. I think we’ve got a tailwind with Samsung. We expect to do some additional business with Samsung in the ensuing quarters. As I think both Dean and I characterize the one headwind we’re experiencing in Mobile is not necessarily to do with inventory or to do with end demand. It’s to do with the roll off of our display driver with our large customer. So that’s, as I said, it’s now an increasingly immaterial part of our business, but it’s still there. It’s still a piece of the business. So we have work to do to offset that as it asymptotes to zero as I said in my remarks.

How material is the legacy DDIC business to Mobile if you measured it on the last month basis?

Yeah. It’s single-digit percentage, Martin.

Got it. Thank you.

Thank you. I’m showing no further questions at this time. I would now like to turn the conference back to Michael for closing remarks.

Yeah. I’d like to thank all of you for joining us today and we certainly look forward to speaking to you at our upcoming investor conferences during the quarter, and more importantly, our Investor Day in September. Thank you.

This concludes today’s conference call. Thank you for participating. You may now disconnect.