Synaptics Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 3, 2023

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Synaptics Inc. 4th Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Munjal Shah, Vice President of Investor Relations. Please go ahead.

Speaker 1

Thank you. Good afternoon, and thank you for joining us today on Synaptics' 4th quarter fiscal 2023 conference call. My name is Manjal Shah, and I'm the Head of Investor Relations. With me on today's call are Michael Holston, 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.

Speaker 1

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 detailed reconciliation of GAAP and non GAAP results, which can be accessed from the Investor Relations website at synaptics.com. Additionally, we would like to To 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 operation, plans, objectives, future performance and business.

Speaker 1

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 ks and quarterly reports on Form 10 Q were important risk factors that could cause actual results to differ materially from those contained in any forward looking statements. Synaptics expressly disclaims any obligation to update this forward looking information. I will now turn the

Speaker 2

call over to Michael. Thanks, Minjal. I'd like to welcome everyone to today's call. We completed a difficult fiscal year where excess inventory led to top line revenue challenges. The good news is that we believe revenue has hit bottom.

Speaker 2

We can clearly measure inventory reductions in the channel and are seeing far fewer push out requests. While some area of our business Our 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 1,000,000 shares, Adding to the 1,000,000 shares purchased earlier in the fiscal year, totaling out to be 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 Fi 7 technology as part of the transaction, which represents 30% ASP uplift over Wi Fi 6.

Speaker 2

It enables us to accelerate the high performance part of our Wi Fi Bluetooth combo roadmap, allowing us to sample Wi Fi 7 products by the end of 2024. The agreement not only stretches our lead and high performance Wi Fi for IoT But also allows us to focus our internal resources on the more critical low power broad market part of the road map. In addition, the transaction gives us Bluetooth 6.0 and Bluetooth Enterprise, 2 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 Fi 6E device that complements our existing high performance IoT Portfolio.

Speaker 2

As part of the agreement, we extend the exclusivity of our license to IoT markets by an additional 3 years. Coupled with our internal efforts, this new deal gives me additional confidence that we can achieve our $1,000,000,000 wireless revenue target. Moving to the June quarter, revenue was slightly above the midpoint of our guidance range with our IoT products beating our prior forecast. The mix within IoT continued to shift away from enterprise applications, resulting in gross margin at the low end of the guide. We maintained our spending discipline and delivered non GAAP EPS above the midpoint of the guidance range.

Speaker 2

As stated earlier, we made meaningful progress lowering customer and distributor inventories in the June quarter. We continue to under ship end demand, but still believe it will take the remainder of the calendar year for channel inventories to return to normal levels. Dean will talk about gross margins in his remarks, but we believe those 2 will return to our long term target of 57% as our product mix shifts back to IoT. Finally, we initiated targeted headcount reductions to ensure that we don't exceed our stated $100,000,000 per quarter non GAAP operating expense target, while giving ourselves room to continue to hire into key investment areas. On the product front, we've started a journey to expand our existing processor portfolio into more deeply embedded applications.

Speaker 2

We have a few design wins now in this area, leveraging both existing software and hardware, differentiating with our AI capabilities. With limited investment, we believe we can unlock opportunities outside our traditional operator space in applications such as video conferencing, High end smart appliances, point of sale terminals, factory automation and security solutions. We will also leverage work being done in human presence detection to introduce a chip that can serve as the basis for an M55 based processing device that has advanced AI features. While we begin some critical future product advancements, We are winning at present in both our traditional operator base with multimedia products as well as in headset customers. Panasonic's recently announced true wireless earbuds feature 2 of our audio processing devices that offer our most advanced ANC and E and C algorithms.

Speaker 2

In wireless, we continue to burn inventory at our key module partner and We continue to enjoy sales success, winning new customers on both our high performance WiFi Bluetooth combos and GPS product lines. We have a number of design wins at key customers such as Cisco, Google, Honeywell, VeriSure and are building market share in the security, Smart Speaker, Action Camera and Wearable segments. Beside the traction we are seeing with our direct customers, We are also making progress in adding new module partners to extend our market reach. We believe our wireless business has bottomed and should return to growth in the next quarter or so. Automotive continues to be an area of relative strength with stable General Motors, Daimler, Volkswagen and Porsche.

Speaker 2

While our design win momentum and Competitive position is strong in this market, we are experiencing pricing pressure for future designs. We plan to navigate this environment by focusing on introducing value added enhanced solutions. In that vein, we are making progress with our Smartbridge product, which has vastly superior performance, particularly around local dimming and can save OEM customers between $10 $15 on their bill of materials. Our enterprise sector has been a double edged sword. While we are winning new designs at a remarkable clip, We are also experiencing significant inventory challenges.

Speaker 2

This quarter, we introduced our Carrera platform for enterprise docking stations. I'm pleased to report that we already have 10 different designs kicking off at the world's 2 largest docking station customers. In addition, our first wireless dock will be available for retail purchase later this month. We continue to do well in enterprise telephony, Adding video conferencing and Wi Fi into a couple of platforms that have recently gone to production. Unfortunately, this area of our business has subject to inventory accumulation.

Speaker 2

And while we were able to reduce levels in the channel, full recovery is somewhat dependent on corporate spending budgets. Moving to PCs. We are seeing demand recover with the June quarter marking the bottom. Customer inventories have come down to normal levels, but overall PC sales are somewhat muted, particularly in the enterprise notebooks where we have outsized exposure. We're using the LoL in the market to build share in our core fingerprint and touchpad technologies, while also introducing our leading human presence solution to more platforms and more customers.

Speaker 2

This feature extends notebook battery life by 20% or more, so we are optimistic that it will gain traction and we'll be sampling a new device later this year. In addition, we believe the advent of larger force enabled touchpads where we have a performance and technology lead represents an opportunity for us to capture substantially higher ASPs and increase share. In mobile, the China Android market is stabilizing with channel inventory for our tuck solutions returning to normal levels And our shipments are now more aligned with end demand. We are benefiting from a larger TAM as more phones switch flexible OLED technology, which requires our high precision solution. We also continue to build momentum at Samsung With our first flagship phone launching a week or so ago, the Z Flip 5, this phone features 2 of our touch chips.

Speaker 2

We expect to build share with this customer during the next year. Core Mobile strength is offset by the decline of our legacy DDIC business, which will continue to asymptote to 0 over the next 2 years or so. To conclude, the business performed as we had anticipated in Q4 And our expectations for a gradual recovery going into 2024 remain. We remain enthusiastic about our wireless opportunity, particularly in light of the new agreement with Broadcom. We are increasing our processor opportunity by moving our high end products into adjacent markets and by introducing a mid tier solution that features a complex neural network and targets low power applications.

Speaker 2

While the enterprise market is experiencing abnormally high inventory levels, we continue to be excited about the complete platforms we are introducing with numerous Synaptics Semiconductors. I'm looking forward to seeing you all at our Investor Day on September 7 in New York, where we plan to update the investment community on our strategy to accelerate the IoT portfolio, provide insights in our investments and highlight our future growth opportunities.

Speaker 3

Now let

Speaker 2

me turn the call over to Dean for a review of our Q4 financial results and Q1 outlook.

Speaker 4

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 $1,360,000,000 which was down 22% compared to $1,740,000,000 in the prior year, largely due to 36% year over year decline in our mobile and PC product groups and a 14% decline in our IoT products. Nearly all of our markets 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 the prior year, as our mix continue to be dominated by our IoT products.

Speaker 4

GAAP net income for the recently completed fiscal year was $73,600,000 were $1.83 per diluted share compared to 257,500,000 or $6.33 per diluted share in the prior year. Non GAAP net income for the completed fiscal year was $326,400,000 or $8.12 per diluted share compared to $551,200,000 or $13.54 per diluted share in the prior year. Revenue for the recently completed June quarter was $227,300,000 above the 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.

Speaker 4

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 of 476,000,000 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 represents the bottom for the PC market as customer inventories are largely depleted And normalization is likely to begin in the September quarter. A full and sustained recovery will be dependent on corporate enterprise IT spending trends given our higher mix in commercial notebooks. Our June quarter mobile product revenue was up 26% sequentially and down 17% year over year, largely in line with our prior expectations.

Speaker 4

Android smartphone sell through, though volatile, has improved recently and inventory is returning to normal levels as we see near term turns orders and occasional customer order escalations. We expect this area to remain volatile on a quarterly basis as the strength in our high end touch solutions offsets declines at our legacy mobile customer. During the quarter, we had 1 customer greater than 10% of revenue at approximately 14%. For the June quarter, our GAAP gross margin was 44.5%, which includes $24,500,000 of intangible asset amortization, dollars 1,000,000 of share based compensation costs. June quarter non GAAP gross margin of 55.7 percent was below our guidance range mainly due to product mix and some additional inventory write downs as our forecast continue to remain weak in some specific products.

Speaker 4

GAAP operating expenses in the June quarter were 139,200,000 which includes share based compensation of $29,200,000 intangible asset amortization of $8,500,000 and a vendor settlement accrual of $4,000,000 June quarter non GAAP operating expense of $97,500,000 was down from the preceding quarter and slightly below our guidance as we continue to maintain vigilant expense control. We had a GAAP tax benefit of $20,900,000 for the quarter and non GAAP tax expense of 4,000,000 June quarter GAAP net loss was $23,400,000 for a GAAP net loss of $0.59 per share. Non GAAP net income in the June quarter was 19,500,000 a decrease of 74% from the prior quarter and an 88% decrease from the same quarter 1 year ago. Non GAAP EPS per diluted share was $0.49 and was above the midpoint of our guidance range. Now turning to the balance sheet.

Speaker 4

We ended the quarter and the fiscal year with $934,000,000 of cash, Cash equivalents and short term investments on hand. This is unchanged from the preceding quarter. Cash flow from operations was 94,000,000 Capital expenditures were $5,200,000 and depreciation for the quarter was 7,200,000 Receivables at the end of June were $164,000,000 and days of sales outstanding were 65 days, up from $60,000,000 last quarter. Our ending inventory balance was $137,000,000 down $11,000,000 as we continue to reduce Given lower top line sales, the calculated days of inventory on our balance sheet was 122. We bought back approximately 1,000,000 shares in the quarter for an aggregate cost of about $83,000,000 Our cash balance is at a healthy level even after the recently announced Broadcom transaction with ample flexibility to navigate our capital deployment We continue to prioritize our capital allocation between M and A, share repurchases and debt management.

Speaker 4

Now let me turn to the September quarter outlook. We remain consistent in our view of the near term outlook and the dynamics in our business. Our focus continues to be on reducing customer and distribution inventories further in the upcoming quarter As the June quarter reduced inventory levels consistent with our expectations. By market area, inventory levels have returned close to normal levels In our PC and mobile products, as many customers appear to be moving in a positive direction on product orders. In IoT areas where inventory levels were highest, we are still working through excess channel inventories, We are now seeing signs of meaningful depletion.

Speaker 4

Within IoT, demand for our consumer facing applications has begun to stabilize, While enterprise focused customers demand continues to be weak, the resulting mix shift is expected to be unfavorable to our gross margin profile. We expect the product mix to return to a more normal profile as recovery begins in early calendar 2024 and margin should have correspondingly improved. Given these end market dynamics And expected channel inventory burn in the September quarter, we anticipate revenue to be in the range of $215,000,000 to $245,000,000 roughly flat with the prior quarter as we expect this to mark the lowest trough point and is now behind us. We expect our revenue mix from IoT, PC and mobile products in the September quarter to be approximately 58%, 22% and 20%, respectively. We expect GAAP gross margin for the September quarter to be in the range of 43.5 to 47.5%.

Speaker 4

We expect non GAAP gross margin in the range of 52% to 55%, a decline from the previous quarter due to the mix dynamics I highlighted earlier. We expect GAAP operating expenses in the September quarter to be in the range of $139,000,000 to $147,000,000 which includes intangible amortization, share based compensation and restructuring costs. We expect non GAAP operating expense in the September quarter to be in the range of $97,000,000 to $100,000,000 In response to the demand environment, we're reallocating investments and deprioritizing Certain projects, but ultimately believe a robust pipeline of new products will be critical in shaping our future success. Therefore, we plan to maintain roughly $100,000,000 per quarter. The recently announced transaction with Broadcom is not expected to affect Our financial outlook for the quarter.

Speaker 4

GAAP net loss per basic share for September quarter is expected to be in the range of $0.55 to $0.95 and non GAAP net income per diluted share is anticipated to be in the range of $0.15 to $0.55 per share on an estimated 39,500,000 fully diluted shares. We expect non GAAP net interest expense to be approximately $7,500,000 in the September quarter. And finally, we expect our non GAAP tax rate to remain unchanged in the range of 16% to 18%. This wraps up our prepared remarks. I'd like to now turn the call over to the operator to start the Q and A section.

Speaker 4

Operator?

Operator

Thank you. We will now conduct a question and answer session. Our first question is from Kevin Cassidy of Rosenblatt Securities.

Speaker 3

Thanks for taking my question. Just a couple of questions. First one is, Last quarter, you thought you're under shipping demand by $75,000,000 to $125,000,000 Can you know what was it for the June quarter? How much under shipping did you do? And are you expecting more in the September quarter?

Speaker 4

Yes. Kevin, you remember that correctly. We still maintain that is still approximately right. In the June quarter, actually we landed about in that expectation. And like we said last quarter and we continue to remain consistent This quarter, we think that range probably continues to persist throughout the calendar 2024.

Speaker 4

That's probably consistent. Okay.

Speaker 3

Excuse me. And the new agreement with Broadcom,

Speaker 5

I expect it will be just as successful as

Speaker 3

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?

Speaker 2

Yes, Kevin, it was $130,000,000 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 Fi 7 technology that we talked about and then a couple of pieces of Bluetooth technology as well as extension of the deal. So we feel like all of those elements Together, this is obviously Broadcom likes the transaction, but we really like the transaction. We think it's a good price for All the elements that we got as part of this.

Speaker 3

Yes, I agree with that. That's much lower than I was expecting $130,000,000 Congratulations.

Speaker 2

Thanks, Kevin.

Operator

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

Speaker 6

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.

Speaker 6

And then I think you mentioned some module deal on connectivity where Someone was scrapping parts? And any commentary there would be great too. Thanks.

Speaker 2

Yes, a couple of pieces and I'll have Dean follow. So number 1, 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, 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 highlighted in the question, enterprise, which accompanies Compasses things like our docking station business, some enterprise telephony. There's some issues in set top box.

Speaker 2

We We're still projecting that we're 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.

Speaker 6

Okay.

Speaker 4

Yes. 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 Yes, parts that are specific for their use, so that answers that piece for you. Okay.

Speaker 2

Yes. Sounds good. What's the module? I mean your question sort of Led to a module. It was a separate non module customer.

Speaker 2

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.

Speaker 6

Yes, 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.

Speaker 6

Are there other parts of your business where you've seen this, for example, In connectivity with this extra kind of inventory out there, I think everyone on the connectivity side has seen a downtick With over inventorying, are you seeing pricing pressures there or any other part of your business? Thanks.

Speaker 2

Yes, fair. So 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 has actually held up really, really well for us. But these are designs that would be shipping Full 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 WiFi 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 or we're Soul sourced in many instances and we have some pricing power in areas that are more competitive like the WiFi, like the touch in mobile, We're definitely seeing some pricing pressure.

Speaker 6

Fantastic. Thank you, Michael.

Operator

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

Speaker 7

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?

Speaker 4

Yes, 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.

Speaker 4

So that is probably what I would sort of guide you to.

Speaker 7

Appreciate that. Yes, 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?

Speaker 2

Yes. 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.

Speaker 2

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

Operator

Thank you. Please hold for our next question. Our next question comes from Eddie O'Rabi of TD Cowen. Please go ahead.

Speaker 5

Hey, guys. This is Eddie for Krish. Congrats on signing the deal with Samsung, pretty interesting. It seems the industry has been trending more towards foldable phones, So can you remind us about Synaptics opportunity there? Like what percentage of mobile revenues Go to portable phones and whether the competitive environment is different there than regular phones?

Speaker 5

And I have another question, please.

Speaker 2

Yes, Eddie, I don't know if we actually break out the specific revenue that's attached to foldable and 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 We're doing unusually well. On the Samsung deal, in particular, as we mentioned in the prepared remarks, we actually shipped Two 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 strength for sure.

Speaker 5

Got it. Thanks, Michael. And just on the Bluetooth 6 IP, first, just a 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 headset market.

Speaker 5

Are there any other new markets that Wi Fi 7 and Bluetooth 6 can open for you like in healthcare, industrial, Etcetera.

Speaker 2

Yes. I mean, 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.

Speaker 2

We can ship into remote controls. We 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 six technology, We're already much closer to our competitors today than we were before this deal. So we've actually really closed the gap on Bluetooth.

Speaker 2

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.

Speaker 5

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

Speaker 2

Yes. Perfect, perfect compare, Eddie.

Speaker 5

Got it. Thanks a lot, Michael.

Operator

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

Speaker 8

Hey, guys. Thanks for taking my question. Dean, in your earlier comments, You mentioned that you might shift to actual customer end demand by, I believe you said the 4th calendar quarter of 2024. Did you mean the 4th calendar Q4 of fiscal year 2024? Because I think that's what you previously communicated.

Speaker 8

And I just want to confirm What's normal when you actually begin to shift to actual customer end demand? Is that roughly in the ballpark of $325,000,000 $330,000,000 in revenue?

Speaker 4

Yes, Gary, I think you have it right. I think it's Yes. Have you seen exactly what that trajectory looks like and what quarter marks that 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 worked through.

Speaker 4

PC specifically, it 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 last quarter's call. So I think what you'll see is inventory burn, right, for the next couple of quarters, somewhere around And then you'll start to see as inventory sort of gets depleted, top line start moving back as you approach End of true end demand over the subsequent quarters.

Speaker 8

Okay. Thanks, With respect to gross margin, so your guidance implies that you're going to run about 3 50 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 boundary partners and in a world where your enterprise IoT business bounces back to its Previous level, do you still see 57% as the long term gross margin target?

Speaker 4

Yes. 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. 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 57% gross margin.

Speaker 4

Really as we get through this inventory burn and as the mix sort of rights itself, it is actually an interesting chart if you want to take a look at it, Gary, In our supplemental slides posted on the investor website that actually gives the 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.

Speaker 8

Okay. And then as far as offsetting Higher foundry quotes, I imagine that's not much of an issue anymore or less of an issue, but maybe you can just talk about that Ability to pass along price increases.

Speaker 2

Yes. 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 As we think about long term, 57 contemplates input prices changing And it contemplates a much less ability.

Speaker 2

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.

Speaker 8

Thanks guys. Appreciate it.

Speaker 4

Yes. Thanks, Gary.

Operator

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

Speaker 9

Hi, good afternoon. Thank you for taking my question. My question is on Sign of recovery and the timing for recovery across different sectors, I definitely understand the PC dynamic where it could stay in a bottom for a longer time. Do you see Mobile recovering from the current bottom or normalized inventory much faster than the other 2?

Speaker 2

Yes, Martin. I mean, I think what we're trying to get people oriented around is mobile and PC have Largely recovered. I think in PC, we see 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 Q4 and into early next year, but it has not yet picked up.

Speaker 2

So Although inventory is in pretty good shape, I think 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 Due to some additional business with Samsung in the ensuing quarters, as I think both Dean and I characterized, 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.

Speaker 2

It's still a

Speaker 9

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

Speaker 4

Yes. It's single digit percentage, Martin.

Speaker 9

Got it. Thank you.

Operator

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

Speaker 2

Yes. 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.

Powered by Quartr
Earnings Conference Call
Synaptics Q4 2023
00:00 / 00:00