Silicon Laboratories Inc (SLAB) 2012 Q4 法說會逐字稿

Good morning. My name is Wendy. I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Lab's earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

Thank you. Ms Pleasant, you may begin your conference.

Thank you, Wendy. Good morning. This is Shannon Pleasant, Vice President of Corporate Communications for Silicon Laboratories. Thank you for joining us today to discuss the Company's financial results. This call is being webcasted and will be archived for two weeks. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the Investor page of our website at www.silabs.com. I am joined today by Tyson Tuttle, President and Chief Executive Officer and Paul Walsh, Chief Financial Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following our prepared remarks.

Our comments, today, will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time. By discussing our current perception of our market and the future performance of Silicon Labs and our products with you today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial condition.

We encourage you to review our SEC filings that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statement. Also, the non-GAAP financial measurements, which are discussed today are not intended to replace the presentation of Silicon Lab's GAAP financial results. We are providing this information, because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations.

I would now like to turn the call over to Silicon Lab's, Chief Executive Officer, Tyson Tuttle.

Good morning, everyone. I'm pleased to report Q4 revenue $152.5 million; our third consecutive record quarter. While a difficult year for the industry, Silicon Labs delivered record revenue of $563 million in 2012, representing 15% growth over 2011. Fourth-quarter results were better than anticipated due to strength in our Video and Access products. The Broad-based products were also up, due to continued market share gains, as well as seasonally strong orders in our legacy Touch business.

I'll talk more about the trend for the quarter after Paul reviews the financial results. Paul?

Thank you, Tyson. Fourth-quarter revenue of $152.5 million was up 2% sequentially and 20% year-over-year. On a GAAP basis, fourth quarter gross margin was up meaningfully to 61.4%. R&D investment increased to $36 million. SG&A expense increased to $32.3 million, resulting in GAAP operating income of 16.6% or $25.3 million. GAAP earnings of $0.44 was slightly above our guidance and included charges related to Executive Separation Agreements, credits associated with the Ember acquisition and $7.4 million in stock compensation expense. Turning to our non-GAAP results, gross margin improved to 61.6%, driven by growth in our Broad-based business, particularly Timing. Mix continues to influence our gross margin in the near-term and we expect gross margin to be in the range of 60% to 61% in Q1.

Operating expenses increased to $60.2 million, due to additional R&D and sales activity, as well as higher variable compensation tied to the strong performance in the quarter. R&D increased to $32.7 million and SG&A increased to $27.5 million. We expect operating expenses will be up seasonally, $1 million to $2 million in Q1. We will endeavor to hold G&A expenses relatively flat beginning in Q2. Operating income in Q4 continued to improve ending at 22.1% of revenue. Other expense of $900,000 included a full quarter of interest payments, resulting from the debt service on our credit facility.

Net income in Q4 decreased slightly to $25.9 million or 17% of revenue. The Q4 tax rate was 20.7%. We expect a significant tax benefit in Q1 from the 2012 US R&D tax credit catch up, resulting in an unusually low tax rate in the low to mid-single digits for Q1 and a reduced tax rate of about 17% for Q2 and beyond. Strong growth in gross margin enabled solid earnings performance. The Company delivered earnings per share of $0.61 in Q4. For the full-year, Silicon Labs earnings of $2.16 were up 20%, demonstrating good leverage on the 15% top line growth. Turning to the balance sheet, accounts receivable increased to $78 million or 46 Days Sales Outstanding, consistent with the growth in revenue.

We continue to have no known collection or bad debt problems. Our inventory levels were up, ending at $49.6 million, consistent with the anticipated growth in Video, Wireless and Micro-controllers. Channel inventory declined significantly to 44 days. So we continue to believe the inventories are relatively well-balanced. We expect our own inventory levels to decline modestly in Q1. Cash flow continues to be strong with cash, cash equivalents and investments increasing to $293 million at the end of the quarter. We repurchased 245,000 shares for $9 million. The current authorization is expiring and will be replaced with a $50 million authorization, approved by the Board of Directors that runs through January of 2014. We plan to continue to be opportunistic for share repurchase throughout 2013 as a key use of cash.

At this point, I will turn the call back to Tyson.

Thanks, Paul. 2012 was a great year for the Company. We navigated through important product transitions and acquired key technology. We launched strategic products in MCU, Sensor, Isolation, Timing, Wireless and Video. I think our competitive position is better than ever. We're expanding our Broad-based portfolio, solidifying our dominant position in Broadcast and managing the moderate decline anticipated in our Access business. We are targeting very large markets with innovative technologies that are enabling key trends in the industry. For example, networking and computing infrastructure, low-power and green energy applications and the explosion of connected devices called the Internet of Things. Over the last several years, we've aligned our Broad-based product development to address these important industry trends. Now, as we exit 2012, Broad-based represents nearly half the Company's revenue.

This business has impressive design win momentum and an expanding customer base. Broad-based products were up about 5% sequentially in Q4 and 30% for the full year. The largest piece of the Broad-based category is made up of our MCU products, which represented 23% of total revenue in 2012. This category was down slightly in Q4, as expected, but up nearly 50% versus the same period last year. This is the result of both a successful acquisition and very strong organic execution. You've heard us talk about the potential for the Internet of Things. The enthusiasm caught on at the Consumer Electronics Show this month with the Internet of Things taking center stage. Customers have developed and are marketing hundreds of connected devices. There is a rapidly growing number of deployments in home, commercial and industrial applications. We have an expanding portfolio of products for these markets. In Q4, we announced the latest addition to our Sensors family, a highly integrated and highly reliable humidity and temperature sensor.

Leveraging a patented designed, this sensor on a chip eliminates the calibration headaches associated with the existing humidity sensors that have limited widespread adoption. When paired with our low-power MCUs and wireless connectivity products, we are able to provide complete solutions in thermostats, smoke detectors, food and asset tracking systems, weather stations and other climate controlled systems. We expect the MCU products to be down in Q1, as consumer demand declined seasonally, offset somewhat by a return in the more industrial oriented segments of the business. We believe MCU has the potential to continue to be a double-digit growth area for us in 2013. We're building on design win momentum in metering and home automation, in aftermarket peripherals and USB devices, in portable electronics, in industrial automation and in medical application.

The 32-bit portfolio we've developed now has four families based on the ARM Cortex M3 core -- general-purpose MCUs targeting the industrial market; MCUs targeting USB enabled products; the industry's lowest power MCUs; and our 32-bit ZigBee Wireless MCUs. The rapid expansion of our portfolio in this area has been opening doors at new customers and providing us with additional momentum in the 8-bit market, as we demonstrate our long-term roadmap. We were able to grow the Timing business again in 2012, despite persistent demand weakness at communications infrastructure providers. Timing represented 13% of revenue for the full year, driven by growth in markets including industrial, storage and embedded consumer that more than offset the soft comms demand.

Timing had a record quarter in Q4, growing 8% sequentially and 20% compared to Q4 of 2011. Design wins increased by 80% year-over-year in Q4. While many of these new designs are in networking infrastructure, a good number are also in Cloud computing for big data, Broadcast Video, industrial, medical and test and measurement. This expanded addressable market for our Timing products, combined with demand for 100-gig networks, supports the increasing market penetration we're forecasting. For the time being, we're not expecting a bounce-back in the comms market in 2013. We are forecasting a decline in Timing in Q1, as the embedded consumer revenue that ramped in the back half of 2012 pauses seasonally. But, we believe the increasingly diversified customer base for our Timing products will result in another strong growth year in 2013, with the opportunity for acceleration when the comms market does recover.

Moving to Broadcast, the business was one-third of total revenue in 2012 and grew 10% year-over-year. Video was a tremendous revenue driver, with growth well ahead of our initial targets. We exceeded our market share goal taking about one-third of the overall TV market, with our silicon tuner in 2012, further securing our dominant position. Q4 Video revenue was up sequentially by more than 10%, due to stronger than anticipated demand from our Korean customers. The crossover to our latest generation devices is happening quickly. We're pleased with the market reception from new and existing customers. Tier 1 design wins are essentially closed for 2013 models. With the strong leadership position coming out of that design cycle and the tailwind of increasing silicon tuner penetration, we anticipate unit and revenue growth will result in further market share gains this year. We're also growing share among Taiwan ODMs serving the Japan market and China OEMs building TVs for domestic consumption and export, all new business for us.

Near-term, we expect Video revenue in Q1 to be flat sequentially, as our customers transition from 2012 to 2013 models. Broadcast Audio revenue in Q4 was down sequentially as expected and ended the year down by about 10%. Audio turned a corner in 2012, as our handset business declined to 5% of revenue and our Automotive products began ramping. We're expecting the overall Audio business to return to growth in the low single-digits in 2013 on the strength of Automotive market penetration. The Access business was up in Q4 and represented 19% of revenue for the full year. We were expecting a decline in the fourth quarter, but stability in our Voice over IP and Modem products combined with growth in Power over Ethernet resulted in sequential growth. While we are pleased with the strength of the Access business and believe it demonstrates the longevity of our mixed-signal products, we expect the Modem business will decline over time. As a result,, we are anticipating the Access business, in total, will be down in Q1 and will likely decline around 10% in 2013.

Now, for Q1 guidance. We're currently expecting a seasonal decline with revenue down sequentially 4% to 8%. We expect Broadcast to be flat and Broad-based and Access to be down. As Paul mentioned, we expect gross margin to be in the range of 60% to 61%. We anticipate operating expenses will be up seasonally by $1 million to $2 million. On a GAAP basis, we are projecting earnings of $0.34 to $0.40. On a non-GAAP basis, we expect earnings to be $0.51 to $0.57.

That's all we have for prepared comments. We'd now like to take your questions. Shannon?

Thank you, Tyson. We will now open the call for the question-and-answer session. So that we can accommodate questions from as many people as possible before the market opens, please limit your questions to one with one follow-up. Operator, please review the question-and-answer instructions for our call participants.

(Operator Instructions)

Craig Ellis, B Riley Caris.

Congratulations on the nice results. Tyson, you talked about the diversification in the Timing business. Can you just scope the size of the non-communications part of that business on a revenue basis as we head into the first quarter? As that business grows through the year, how should we expect the size of the non-communications business to expand over the course of 2013?

Right. So we spent the last number of years investing in the Timing portfolio and now have a broad range of products targeting not just the communications market but things like servers and storage and even some consumer applications. The size of the market that we're addressing outside of the communication market in clocks and oscillators, we believe, is between $500 million and maybe $800 million, $900 million of the total market. If you look -- the revenue is still largely dominated by the infrastructure -- the communications infrastructure players, but I would say that the growth that we saw in the quarter was primarily in the non-communications pieces. So, we're not completely breaking it out and being specific about it. But we believe that we are addressing a substantially expanded market with these new products. We still have a very small share of that. So we do believe that will be one of the growth drivers that we see in 2013, even if we don't see the comms market recover.

Thank you for that. Then the follow-up is perhaps to Paul. Paul, I think we've been expecting that as you move to the next generation of Video products that the gross margins on those products would improve. Is that still the case? As we think about the first quarter guidance, is the sequential decrease in gross margin simply a function of the mix shift towards Video and away from some of the higher-margin products? Or are there other factors that play? Thank you.

Craig, yes. I think you hit it right on the head. The decline in the guidance for Q1 for gross margin is largely a function of a mix at the Company level. As Broad-based and Access are expected to decline and Broadcast to hold flat, we expect that to impact the overall mix downward. There is improvement in the next generation tuner, as we've talked about previously. That is helping the top line -- I mean, the gross margin line.

Thanks. Then, lastly for me before I jump back in the queue, you're at 33% market share now. Where would you expect to exit the year with the TV tuner business? What's the longer-term goal for market share?

Right. So on the Broadcast Video side, we exited the year with 33% share, so about one-third share last year. We've said that we're going to be up both in terms of units and in terms of revenue. So with the expected decline in ASPs year-over-year, we think that we're going to be well-positioned to take a larger share of the market in 2013. Where that will end up depends on where some of the shares of our customers end up in the end market, but we feel pretty confident that we're going to expand the share going into 2013. We've also got some tailwind in terms of just silicon tuner penetration overall, as more of the market will be switching to silicon tuners. We think that about half the market last year was silicon tuners. We think it could be two-thirds or more silicon tuner penetration this year. So given our dominant position and the design-win momentum, we think that we'll maintain our fraction of the market there for silicon tuners.

Thanks, guys. Good luck.

Ian Ing, Lazard Capital Management.

You said Handset Touch was decent in the quarter. What percent of sales is Handset Touch right now? Expectations going forward?

Handset Touch was a little stronger in Q4 than we had anticipated going into the quarter. It was somewhat less than 5%. Going into Q1, that's one of the headwinds that we've got a little bit -- it's probably about a 2% headwind going into Q1. So it was a little bit stronger. We had thought that the Handset Touch would've wound down by the end of the year. Now, we think it will be winding down by midyear 2013, so we've got to look another step down here in Q1 and then probably most of the way down beyond that in Q2.

Great. My next question, you talked about strength in Timing embedded in industrial applications. How far are you in terms of building out more of the Timing products for the higher volume, lower-cost opportunities following the SpectraLinear acquisition?

Right. That dramatically increased our portfolio devices across a wide range of additional applications. We've continued to invest there and introduce new variants of those products to more fully cover these areas. So we've also been maintaining the pace of developments on the communications infrastructure side. So we think we've got a complete portfolio of parts to address a wide range of applications and a lot of flexibility to go after these, going forward. So we feel confident about our continued market share gain and product execution as we enter into 2013. The design-win momentum in that area has also been at record levels. We were 80% up year-over-year in terms of design wins. That is largely a reflection of the increased breadth of that portfolio.

Sandy Harrison, Wunderlich.

Tyson, you talked a little bit about the Internet of Things. It seems such a broad topic and a lot of different ways to hit it. If you could just maybe spend a second highlighting how you guys are approaching it. What areas you think are going to fill in and be opportunistic first. Then, how it is, that your strategy is to come at this market?

Right. So the Internet of Things is a really important and strategic market for us. We're nearing 10% of our revenue, if you add up all of the applications around the Internet of Things. We've got a pretty strong presence in home security and automation, in some of the smart energy and metering applications. We've got multiple technologies that come to bear into this market, which is what makes it really strategic for us. We've got low-power Wireless MCUs. We've got sensors. We've got power products. So this is really an exciting opportunity going forward for us. It's getting a lot of attention both -- we talked about the Consumer Electronics Show, but with a lot of these emerging applications I think this can be a great growth driver for us going forward.

Then, a quick follow-up for Paul. When you look at the margins in this business, is it in line with the Corporate average? Is it better, lower? When you're talking billions of units of opportunity, how do you guys look at it from a margin perspective?

Sandy, I would characterize this as basically being in line with the Corporate average, for this opportunity.

Great. All right. Thanks, guys. Nice job.

Anil Doradla, William Blair.

A couple of questions. Tyson, you talked about design wins being locked down for 2013. Can you walk us through what the implications are, from a pricing point of view? Do you expect to launch any new iterations of your chips during 2013?

Yes. So the design win -- most of the design wins at the Tier 1 for 2013 are locked in. I'd say, most of the China and Taiwan players also locking down for 2013. So I feel good about our position going into the year in terms of growth. We're certainly going to grow units and revenue, which means that we're growing units faster than the ASPs are coming down. We've seen maybe a 15% year-on-year historically in this. I don't see anything different this year in terms of ASPs. We've certainly got the cost reductions in place to be able to support that. We've broadened that portfolio to have specific targeted versions for some of the Tier 1's as well as the various segments of the market to match up to the various SFCs that you see out there. So certainly, we've got the portfolio to compete for 2013 and continuing momentum on the product development side as we March through the year.

On the Timing side, you said you don't expect any comeback. But would love to hear what you're picking up from your customer base. Any trends on a geographic basis or product cycle basis, 3G versus 4G or optical? Any thoughts would be helpful.

Well, yes. We talked about the 100-gig rollout. That's certainly a factor for us. I'd say that we were probably a little stronger in the US, in the North America area in terms of revenue in Q4. The design wins are there. It's a little bit hard -- not a lot of visibility out in the second half right now in terms of Timing. I would characterize the environment right now as weak in that communications infrastructure piece. I can't point to specific areas and say that we've got particular strength in any of those. But, I think, given the design-win momentum that we have, I think we're well-positioned in that communications infrastructure piece to continue to take share in 2013 regardless of the macro situation out there.

Great. Congrats, guys.

Vernon Essi, Needham & Company.

I was wondering, regarding the guidance and of course, the channel inventory number you provided. It seems like the channel is somewhat light. How is the tone out there? Earlier, you had talked about the headwind on the Touch side, but can you just sort of flesh out the puts and takes of that guidance that you gave?

Vern, this is Paul. The channel inventory of 44 days is -- I think it's a good level for us. I don't think it's necessarily light. It's in the target range that we typically highlight of 40 to 50 days. With regards to Touch, as Tyson alluded to it, Touch has become -- Touch has been a headwind since we exited. It will continue to -- it provides a little bit of resistance into Q1, for revenue as well. That's probably the factor. Other than that, it is generally a seasonality impact that we're seeing in Q1.

You would say that -- as far as you're concerned from the channel perspective, things are sort of normal for this seasonal time of year?

Yes. I don't have any concerns about what our channel inventory is.

Okay. Then, my second question. On the OpEx side, you've got a sequential gain of $1 million to $2 million on the guidance front. Where do you see that more falling, on the R&D or the SG&A side?

It's probably split relatively even. Typically, we have a seasonal uptick in Q1 -- that as all the payroll, tax and salary increases are reset. That's pretty well understood, I believe. I would say, we continue to have strong R&D activity and strong tape-out activity and that will continue going forward. Our intention, on the OpEx side really is, as it was in 2012 was to gain leverage on the bottom line through top line growth.

Okay. Then finally, Tyson, I think you had an earlier question on the Internet of Things. Wondering, from your perspective, where you see the biggest opportunity sort of, in 2013? Do you still think it will be the vertical approach with customers like at [Control4]? Or do you think you'll see more things coming from just the -- what [junks] called the catalog side of the business?

Well, it's a fairly broad range of customers and end devices that go into the Internet of Things. If you look at, for instance, someone like a Lowe's or even some of the security providers -- you've got the cable companies rolling out security systems. There's a variety of devices that get connected up into these networks, various sensors, various -- you've got lighting. You've got some of the home security and fire and environmental types of devices. So you get a real different number of devices with chips in them and additional mixed-signal content for us. So, I think that those are going to be some of the primary areas -- the home automation, home security and the energy type of applications that are going to be really driving the growth in 2013. It is an increasing customer base. One of the goals that we have is to try to provide system-level solutions, so that you can serve that broad channel of customers.

That's just my question. Is it more, at this point, still you see of a systems-level sale or is it increasingly becoming less so?

I think it is a complete system that we're able to provide. We have multiple components going into that system as well as the software that wraps around it. So I think that we've got a very good position and a good value proposition to all the different customers that we're addressing.

Steven Eliscu, UBS.

First question around gross margin, looking a little beyond Q1. Just -- you talked about your new generation of Video getting good acceptance. The cost reductions you've talked about in the past related to that new family. Just with the growth of Broad-based and those products rolling out through the year, what is the opportunity to get gross margin above the low-end of your range, which you've been out since now the beginning of 2011. Could we expect to get up to let's say, 62% exiting the year?

Steve, this is Paul. A few pieces of this -- I'll take it in chunks. First, there is improvement in the TV tuner gross margin. But as we've said all along, it's never going to get back to the Corporate average. It just becomes less of a drag than it used to be. Second, the impact in Q1 is largely a mix -- or is largely a function of the mix with Broad-based and Access down and Broadcast flat. We saw this mix in 2012. But as Broadcast grew throughout 2012, you saw the lift that we talked about taking place, where gross margin basically expanded to almost -- close to 62% as we exited the year, 61.6% for Q4. Now, I would expect that as Broad-based recovers in 2Q and beyond, I would think we would begin to see a natural lift in gross margin towards more desirable levels. I'm not going to call a quarter of when that would be, but I think we will see improvement like we did in 2012.

So, just calibrating. If we look at the year-on-year improvement in Q1, that's kind of an indicator as to how we should think about the full year?

For gross margin?

Yes.

Yes. I think you can. I think, one thesis still plays true and that is as Broad-based becomes an increasingly larger part of the Company, that gross margin will begin to lift. It's close to 50% of the Company today. As we cross that line, it will definitely pull gross margin up with it.

Okay. Then, just as a follow-up. If we think about 2013, Paul, you talked about wanting to gain operating leverage and holding OpEx fairly flat from Q2. If you are able to do that, clearly, you will gain some leverage. But we saw in 2012, you still felt you needed to do acquisitions to fill out your technology portfolio to address some of these secular trends such as Internet of Things. Are there any pieces this year, you still think that you'd need to acquire, let's say, around Wireless or Sensor capabilities, an Ember-sized acquisition that may still be ahead of us, that may prevent realizing as much leverage as you're indicating?

Well, we always look at -- we're always very -- I guess we're always constantly looking at acquisition opportunities. We look for them, really, to be strategic type of opportunities that would help accelerate our growth going forward. We believe the Ember acquisition was a great example of that. It's a core component of our capital strategy to continue to look to that going forward. Now, how that impacts our operating leverage is -- it only would be a guess at this point. Our intent, when we acquire companies that have a revenue stream or late-stage private, is really to get them to be accretive in a 12-month time horizon.

Steve, this is Tyson. I just want to restate -- our objective is that we are very much focused on organic growth, on making sure we select the right products, on execution and gaining share. The way we've approached our M&A activity and the way we're approaching it is to identify strategic gaps like we did with the Ember acquisition, in terms of the ZigBee portfolio and use those to augment our portfolio to accelerate that growth going forward. So while we aren't ruling out anything and continue to be active in the market out there, I think that our focus on organic growth remains our primary objective.

I guess just -- do you feel essentially you're pretty well set and there may be other acquisitions you need to do? Or are there still some of -- are there still some big gaps out there? I'm just trying to get a sense as to the degree of that --

Steve, this is Paul again. Our focus is largely organic growth. It historically has been that way. We view acquisitions as opportunities to either acquire some key technology that would help accelerate the roadmap or something that would be equally strategic if it's a little bit more developed. But the focus has been and remains organic growth.

Blayne Curtis, Barclays.

Just to follow-up on the Video business. I know seasonality seems impossible to trend here. But you mentioned that you're seeing a transition over to the 2013 models. So if you could take just a view as to how you see this year playing out. In the past, you seen a big first half and then it fades. You've seen -- you should have some idea of where you stand. Then, you talked about growth, but didn't quantify for this business line a specific number. I think you talked about revenue still growing. So can you talk about the moving pieces? It sounds like you are gaining a good bit of share and the market is moving your direction. But what are the moving pieces for the full year growth?

We had a great year in 2012. We ended the year at record revenue. While we're taking a little bit of a pause as the TV makers are moving into 2013, it's still quite strong. I think that the market share gains that we've gotten -- that we're well set up for the year as it goes through. I would say that the Video business, while it's targeting consumer applications, is not as cyclical or doesn't have as much variation over the year as some of the other types of businesses. So I don't expect through the year for there to be ups and downs. What we've seen in the past has largely been a function of market share gains. So I think, we're going to have pretty steady revenue on the Video side, given inventory and all of that, out of the market staying in balance. But overall, from the visibility that we have right now, which is somewhat limited, I would say that it's going to be fairly steady through -- maybe steady to rising, as we move through the year in a modest fashion.

Thanks. I know the Touch business is going away. It spiked up in Q4. Can you talk about -- when you look at your decline into Q1, how much of that Touch -- how much does Touch represent of that decline? I think I just wanted to clarify, that you expect it to be down into insignificant levels by midyear. Is that correct?

Right. Touch was a little bit under 5% of revenue in Q4, stronger than we thought it was going to be. I guess, the Handsets that we were designed into have a little bit longer life and are selling quite well. We expect -- so out of that, we've got a pretty strong guide going into Q1 with the midpoint 6% down and about 2% of that -- is out of the Touch. So we've got about a 2% headwind going into Q2. Then we'll have maybe a similar type of decline going into -- about a 2% headwind going into Q1 and probably another 1.5%, 2% going into Q2. Then it will be down to small levels. So we think by the middle of the year, Touch will be around zero.

Tore Svanberg, Stifel Nicholas.

Nice quarter. First question is, I know you usually don't give bookings data and backlog data. But can you just talk about your relative visibility going into the March quarter? I'm just trying to understand from a linearity perspective -- is the environment still quite stable for you?

Tore, this is Paul. Typically, the way we build our guidance really is around how our bookings patterns and ordering patterns are trending, particularly relative to prior periods. We study that carefully. So, our guidance is really built on what we're seeing and what we've seen so far and what we're seeing going forward. I would say, like many out there, visibility is relatively limited. The visibility doesn't seem to improve, but we feel confident about our guidance based on what we've seen to date.

Very good. My follow-up question is for Tyson. Tyson, when we talk about Internet of Things, you obviously have most of the technology and components, whether that's low-power Wireless, Power, MCU. Is there anything else you feel like you need in your arsenal, at this point, to continue to grow into that market?

No. I think that we've got a lot of the key pieces and really uniquely positioned among the companies that are entering this space, given our Sensors, our Power products, the broad MCU portfolio that we are developing and the various Wireless technologies that we're able to bring to bear. So I feel comfortable that we've got a leading portfolio of products. We've also got some of the leading software offerings in this area to pull the entire system together. So as these applications take off -- there was a lot of attention at the CES this year. I think that we're going to continue to focus on driving the integration forward and driving the system-level value that we can provide to help drive the market and drive the growth. So I feel good about where we are in the Internet of Things and think that's a good area, where mixed-signal is really important and a key part of our value proposition and as part of these applications.

Sounds good. Very nice quarter. Thank you.

Cody Acree, Williams Financial.

Congrats on a good quarter. Could I get just one quick clarification? You did say that the TV business and tuner business was just likely to build a bit through the year and maybe only grow modestly?

In general, the TV market is driven by model years. So you end up -- we've essentially won the 2013 models that we're going to win. Those are ramping into production here as we move through Q1. So those will remain in production as the year goes on. If you just look at the quarter-to-quarter variation in shipments in the TV market, it is reasonably consistent throughout the year. So we think that overall our business is going to be consistent throughout the year. There may be some opportunity for some additional market share gains, as we move through the year, which would be responsible for any uptick.

Got you. Then you look at the Tier 2 players, as maybe some of biggest place you can gain that share. What do you think your mix, Tier 1 to Tier 2, looks like as you exit the year knowing what you know about design wins?

Well, we've certainly had a dominant position at the Tier 1 suppliers, in particular, the leading -- the Korean makers have a long history and a tight relationship with those vendors. Given their position in the market and the high-value of those products that we sell in there, it is -- I would say that it's more dominated by the Tier 1. But this year, our mix between the Tier 2, Tier 3 providers -- China, Taiwan, both ODM and OEM type designs -- it is going to be a higher fraction of our revenue this year, certainly, as we gain share.

Any color on how big that might be?

I don't have a specific number in terms of the revenue breakout, but a lot of the market share gain that we're going to see in the year will be largely driven out of the China and Taiwan increased volume.

Then lastly, when we've talked throughout 2012, there were times when it sounded like the biggie market for you, the telecom infrastructure market -- the niche that you're playing in was a little more insulated, maybe held up a little bit better. It sounded like maybe your tone in that market is now maybe a little bit more conservative. Has anything changed recently?

No. We continue to have record design-win momentum in that infrastructure piece, across a wide range of applications and across really virtually, if not all of the equipment makers in a variety of the applications. So we've increased our footprint within them -- within those suppliers. It's just that has not translated into the revenue growth that we were hoping. I think that's an indication of just the broad weakness across the comms market. So it's not that we're addressing just a niche or that we're any more -- those boxes aren't shipping. We've got some rollout on the Wireless infrastructure side. That's not a place where we have played as much. We were mainly benefiting from a lot of the backhaul investments there. But as we move forward and as we've gotten design wins into more applications in the infrastructure market, we think that should provide a lever. But I think that where we're standing right now, the visibility is somewhat limited. But if those boxes do start shipping, we've been lining up the design wins. We think we're well-positioned to benefit from that.

Great. Good luck, guys.

Brendan Furlong, Miller Tabak.

Thank you for putting out the press release earlier. That's helped. Question, going back on the TV question yet again, unfortunately. But various prognosticators, forecasters out there were saying TV units flat to up, 2013. Factoring in all the various moving parts, something around mid single-digit, maybe a touch better, would seem to be a realistic target for you guys for the year in terms of revenue growth?

You mean in terms of the TV tuner revenue?

Correct.

Yes. I think that our growth story 2012 to 2013 is largely based on market share gains. We're not anticipating a large increase in the total number of units. You've also got to remember that the silicon tuner penetration within that market is increasing, where we were about 50% last year. We're talking about, it could be two-thirds or greater silicon tuner penetration. So really the growth that we're seeing -- we haven't given specific targets on the exact number. But we will see revenue growth from 2012 to 2013. We feel very good about where we're entering the market in terms of market share.

I've got you. Then the last question is just a clarification. Did you say your total Access business will be down 10% in 2013 or just the Voice part of that?

The total Access business -- while we had a pretty -- it was down 4% in 2012. So that's demonstrating some of the longevity of those products. But we do anticipate that Modems will continue to unbundle out of the set-top boxes or go to lower speeds. The total Access business, 10% is a reasonable -- 10% or less, but that's the estimate we have right now.

Craig Berger, FBR Capital Markets.

On the Video stock, have you given any indication what blended pricing trends did in 2012 or what you expect them to do in 2013?

I mentioned earlier that, we've seen historically about a 15% reduction in the ASPs overall in that market year-on-year. We don't anticipate or we don't see that being much different here in 2013.

Okay. Thank you for that. Then a follow-up question is, in the Timing business, one of your competitors was acquired maybe a couple years ago. What are you seeing competitively in that market with the new operator of that Timing business just competitive dynamics? How do you feel you stack up?

Right. We view our main competitor in the Timing market as primarily IDT. There's a number of other players out there. We think that we've got a broad portfolio. We've continued to invest both extending the products into a wide variety of applications, as well as broadening our portfolio on the infrastructure side. We think we've got a leading offering against all of the competitors out there. So we think that we're well-positioned to continue to gain share in this broader Timing market.

Last question, what are your priorities for uses of cash as cash does begin to build up? When might the Company consider returning some cash to shareholders?

Craig, this is Paul. Historically, our two primary uses of excess cash have been in the areas of share repurchase and acquisitions. We talked a little bit about acquisitions earlier today. Share repurchase, we've been historically very opportunistic over the years, retiring about 35% of the float and spending about over $800 million in that area. That remains the same. There's no change in that strategy. We'll continue to be opportunistic where we can be and while under the constraints of what our domestic cash balances might be.

Terence Whalen, Citi.

Congratulations on the results. The first question is on, what you expect in terms of order patterns in the first quarter, particularly with regard to, before and after Chinese New Years? Thanks.

Terence, this is Paul. Yes, there was an earlier question about visibility and our ordering patterns leading up to our guidance. That's been the foundation of our guidance. But I think the Chinese New Year comes a little bit late this year. Chinese New Year always tends to create a little bit of cloudiness around visibility into the second half of the year. So it's really something we can't predict at this moment.

Okay. Fair enough. The other question that I have is, looking at 2013, what are any factors that would cause your Micro-controller business to grow less than the rate of growth in 2012? In other words, given that we're seeing an improving cyclical environment, what are some potential headwinds that would not enable the Micro-controller business to grow as fast as it has in 2012? Thanks.

Right. I think that, you look at the broad offering that we've got in the Micro-controllers. We've got our 8-bit business, where we've had very good design-win momentum. We're seeing some benefit of the other technologies that we have, where we can come in with more of a system sale. We, just in 2012, announced our 32-bit Precision32, the ARM Cortex M3, products that we continue to expand that portfolio. That's going to start contributing some revenue in 2013. So that's going to layer on. Then you've got all the Wireless applications. We've been talking about the Internet of Things and how that's really starting to get some traction. So we think that 2013 is going to be a double-digit growth year for us, driven by 32-bit, the Internet of Things -- then you look at the Sensors and the other Power products that we've got and the synergy that has with our Micro-controller business. We feel like 2013 is going to be a good year.

Thanks. Good luck.

Srini Pajjuri, CLSA Securities.

Tyson, a couple of follow-ups. On the Micro-controller side, you seem pretty optimistic about 32-bit. Could you give us some idea of what you expect the mix to be exiting this year in terms of 8-bit versus 32-bit?

Right. We've talked in the past about how the 32-bit revenue would really be a second half story for revenue, as those products were introduced and you get through the design win pattern. So as we enter the year, the 8-bit is the dominant piece of the Micro-controller business. Now, all of the Wireless and the ZigBee Wireless MCUs, those are all 32-bit as well. So that's already contributing at a good clip. So I think -- it's hard to put an exact number on that, but you're going to see the mix shift over time. I think the 32-bit is going to be the faster growth area and is going to contribute meaningfully to the growth in 2013.

Okay. Do you expect any impact on ASPs or margins as the 32-bit ramps?

Certainly, a lot of the 32-bit applications are coming at a higher ASP. Also, when you look at the design wins, the revenue per design win tends to go up in those types of applications, especially when we've got multiple technologies to bring to bear. So from a margin perspective, I don't think that we're going to see -- I think that's in line. But I think in terms of the dollar value and just the opportunity sitting in front of us, it dramatically expands the [SAN] that we're addressing and a key part of our growth going forward.

Then finally, Tyson, can you talk about your outlook for the Audio business for the year? I understand -- obviously, the Handset issues are behind that you, but looking into Automotive and other markets, what do you expect for that business this year? Thank you.

Right. So, we've had significant headwinds in the last number of years as our Handset business wound down. We ended the year, where Handsets were about 5% of revenue in 2012. Now with the Automotive products starting to see a nice steady ramp going up, we think we're going to be back into a growth year -- in low single-digit growth in 2013. I think that Automotive revenue is just going to continue to build for years to come. The margins are good there. We have a very competitive position -- very good competitive position to continue to gain share and some good traction with the Tier 1 Automotive makers. So I feel very confident that the Audio business has turned the corner. We're back into growth mode. It's going to be a good part of the growth story going forward.

Gus Richard, Piper Jaffray.

Tyson, I just wanted to talk to you a little bit about Wireless standards on the Internet of Things. There's quite a proliferation -- [Z-Wave]; Weightless; ZigBee; [low-power boosts]; et cetera; 900-megahertz; some people have gone proprietary; some people are going with standards. What do you see there -- are all these standards going to work? What are your plans in terms of the Wireless and standards that you're going to support?

Right. So there are a variety of standards that are getting deployed. Certainly, we all know about Wi-Fi, and that certainly has its place. That's a continually evolving standard. Our view is that, if you really -- our focus is on the embedded applications and on low-power mixed-signal intensive application. So a lot of the Sensors, a lot of the battery-powered applications where low-power and low-cost and mixed-signal integration are key. In those areas, I think that ZigBee is going to be the winner, the 15.4 variance and the ZigBee, in particular, is well-positioned. It's the most mature of those low-power standards. It's the most secure -- the most robust. You see an accelerating momentum in terms of the deployments and the penetration out there. So I believe that for the low-power type of Internet of Things applications, I think ZigBee will be an important piece.

If you have high data rate for transferring Video, then Wi-Fi is certainly going to have its place. Those will work side-by-side with each other. When you mentioned Weightless -- Weightless is more of a whitespace and really addressing more of a machine to machine, larger area type of standard. So I think you'll still see a number of different standards out there. But I believe that ZigBee will continue to gain momentum over Z-Wave, which is provided just by a single company and has a number of performance and security issues, especially as you see the operators, the Time Warner and Lowes and Comcast deploying these home security networks based on ZigBee, I think the installed base there is going to continue to have momentum -- also in the energy meter. So we're very, very bullish on where we are and where ZigBee is positioned in the market.

Got it. Then there are interoperability issues between like say, a Lowes and a Comcast. Do you see that as being an issue? Or just are you going to have a bunch of parallel networks?

I think that's a problem that's being actively worked. It's going to be solid.

Thank you very much for joining us today. This now concludes our call.

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