Silicon Laboratories Inc (SLAB) 2013 Q1 法說會逐字稿

Good morning, my name is Alicia I will be a conference operator today. At this time, I would like to welcome everyone to the Silicon Lab earnings conference call. All lines of them placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session.

(Operator Instructions)

Thank you. I would now like to turn today's call over to Shannon Pleasant.

Thank you. Good morning, this is Shannon Pleasant, Vice President of Corporate Communications for Silicon Labs. Thank you for joining us today to discuss the Company's financial results. This call is being webcast and will be archived for two weeks. The financial press release, reconciliations of GAAP to non-GAAP financial measures, and other financial measurement tables are now available on the investor page of our Web site at www.silabs.com. I am joined today by Tyson Tuttle, President and Chief Executive Officer, and Bill Bock, Chief Financial Officer. Bill 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 statements or projections that involve substantial risk 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 any 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 statements.

Also, the non-GAAP financial measurements which are discussed today are not intended to replace the presentation of Silicon Labs 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 Labs Chief Executive Officer, Tyson Tuttle.

Good morning, I am pleased to report another great quarter with revenue up 16% year over year. Excluding our test controllers, every on of our product lines was up compared to this time last year. I'll talk more about the trends for the quarter after Bill reviews the financial results. Bill?

Thank you, Tyson. First-quarter revenue of $145.4 million was at the high end of our guidance range. This reflects a decline of 4.6% sequentially which is less than we would normally expect seasonally. Broadcast led the way with record performance in the quarter. On a GAAP basis, first-quarter gross margin was 60.1%. R&D investment increased as expected to $37.6 million and SG&A expense declined to $29.2 million, resulting in GAAP operating income of 14.2% or $20.6 million. GAAP earnings increased to $0.46, well ahead of our guidance and included charges related to executive separation agreements, and $6.3 million in stock compensation expense.

Turning to our non-GAAP results, gross margin declined as forecasted. This was mix related as broadcast revenue represented a greater share of the revenue than last quarter. At 60.3% for the full quarter, this gross margin represented our expected low for the year and we anticipate a full 100 basis point improvement for the second quarter. We were able to incrementally drive operating leverage through expense controls. Despite first quarter seasonal upticks in overhead on FICA taxes and our annual payroll raise cycles, operating expenses increased only fractionally to $60.6 million. Both R&D and SG&A remained relatively flat, a significant accomplishment. We plan to manage operating expenses carefully while making the required investments to support our growth. We expect operating expenses will increase by about $1 million in Q2, with growth in R&D, partially offset by declines in SG&A.

The combination of higher revenue and favorable operating expenses resulted in better than anticipated operating income of 18.6% in Q1. Other expense was about $600,000. Net income, therefore, increased to 17.5% of revenue or $25.4 million. The tax rate was materially lower than typical at 4%, reflecting the 2012 catch up on the renewal of the US R&D tax credit. The tax rate will return to a steady-state of about 17% for the rest of the year. These combined effects enabled better than anticipated earnings performance. The Company delivered earnings per share of $0.59 in Q1, well above the high end of the guidance. Additionally, this represents an impressive increase of nearly 40% compared to the same time last year.

Turning to the balance sheet, accounts receivable were $72.8 million, or 45 day sales outstanding, consistent with our historical performance. We continue to have no known collection or bad debt problems. Our inventory levels, however, were up, ending at $56.9 million. This increase was the result of a demand mismatch on certain part numbers. The higher inventory drove a reduction in turns to 4.1. This is off our model and will require a couple of quarters to fully address. We believe we will be able to meaningfully reduce inventory levels by the end of Q2 with further improvements in turns throughout the remainder of the year. Channel inventory was up as well for the quarter. We are managing the correction in inventory levels carefully.

Cash flow continues to be strong. We generated $27 million in net cash in Q1. At the end of the quarter, cash, cash equivalents and investments increased to $320 million. We acquired no new shares in the period but our $50 million share repurchase authorization remains in effect through year end. Our balance sheet remains in excellent condition.

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

Thanks, Bill. At a high level, we are encouraged by the strength of the business. We are maintaining a tremendous drum beat of design wins with lifetime revenue potential up over 50% compared to Q1 of last year. Where demand weakness in the market has persisted, we have been able to secure new business and expand our serve markets. In the product areas where we are dealing with some headwinds in touch and handset tuners and in modems, we are offsetting these declining businesses with exciting new products.

Let's start with broadcast, which was 35% of revenue in Q1. Revenue was up 7% sequentially and more than 20% year-over-year. The video business performed well through the 2013 model year transition at our customers and was up 8% sequentially. Video is on track to be a strong growth driver in 2013. We're expanding our market share to greater than one third of the total TV market this year. We're also getting better visibility into 2014. The 2014 model year design wins are already going very well. Total wins were up by nearly double compared to Q1 of last year. Good traction at new customers in Europe and China are certainly contributing to the market share expansion we are anticipating next year. But broadcast growth is about more than video alone. If you look at our broadcast business over a five-year period, we believe it can grow 10% or greater on a compounded basis. That growth is not resting on the shoulders of any one product area.

Let's start with our audio products. We've been weathering decline of our FM tuner business in handsets. That product revenue will go from 5% of total revenue last year to 2% to 3% of revenue in Q2. The remaining majority of the audio product revenue will be driving a compelling long-term growth trajectory starting this year. We've leveraged an efficient proprietary architecture to create products that open up markets and cement our position in consumer radio. For example, at the low-end, we recently announced another addition to our consumer radio family. This new, all in one, AM FM radio solution address the 115 million unit per year market for wheel tuned radios built in China. Existing solutions use dozens of discrete components, requiring labor-intensive hand tuning and provide poor performance. We can resolve these issues for customers in a single cost-effective IC.

At the high-end, we just announced our first family of digital radio products addressing the opportunity for HD radio and digital audio broadcast in consumer and ultimately automotive applications. Leveraging Silicon Labs proven architecture, digital radio is an exciting new vector for our AM FM radio solutions. Already shipping to customers, these new products solve a number of the issues limiting digital radio adoption in the past. They reduce complexity and system cost, and they improve performance and reduce power consumption. The high dollar content per system and our competitive differentiation are expected to create another incremental growth driver. Then there is automotive radio. This is a market we're beginning to penetrate that has a $300 million TAM. We've been steadily making progress against the incumbent competitor with our highly integrated CMOS base solution and we expect automotive alone will be $100 million business for us over time. So with video looking strong through 2014 and an increasingly diverse growth story in audio, we believe the broadcast business will be an important brick in our foundation as we build towards $1 billion in revenue.

Our broad-based business, which was 46% of revenue in Q1, was up 15% year-over-year. With large end markets, relatively small market share and very competitive products, we've just started to scratch the surface in this area. We took a pause in Q1 with broad-base down about 10% sequentially, driven primarily by our legacy touch business which declined by about 25%. As you know, this trend will accelerate into Q2 providing a continued short-term headwind for us. Our MCU and timing businesses were down modestly in Q1 as industrial and communications demand remained muted. We are expecting a rebound in these product lines in Q2 as the end markets show signs of life. In fact, we expect industrial revenue will be up by nearly 10% across the Company in Q2 as new customer projects begin to ramp.

Our confidence in our broad-based business has a lot to do with the target markets we are attacking. For example, we are directly targeting energy efficiency. We have an industry-leading suite of solutions to enable energy efficient design in a small footprint without performance compromise. Our power products fall into this category. We offer the industry's best solution alternative to optocouplers and optodrivers for example. This quarter we will be announcing our latest innovation targeted at energy savings and motor control applications, one of the largest segments of the embedded industrial market. We're also attacking the wireless connectivity market developing into the Internet of Things. Our low-power capability is critical here, where battery life is often a primary design criteria. We are seeing increasing activity in areas like solar power monitoring, street lighting, and RFID readers.

We made a number of announcements recently reflecting our continued push into connected applications for the Internet of Things. We are one of the first vendors to be certified on the newly released ZigBee IP specification, the first open standard for IPv6-based wireless mesh networks. This, and other standardization efforts to simplify the interoperability between connected devices, will be important enablers for the Internet of Things. We introduced an ultra-low-power transceiver optimized for China's rapidly growing smart metering market. The new solution is ideal for in-home energy management systems and other smart grid infrastructure applications.

The install base of smart meters in China is expected to grow from 139 million units last year to 377 million units by 2020. We plan to be part of that growth story. And we announced a collaboration with SIGFOX to deliver ultra-narrowband long-range and low-cost wireless M2M communication for patient monitors, security devices, street lights and environmental sensors. This solution enables and internet connectivity for devices that would have been otherwise difficult or impractical to reach until now. The third major trend we are attacking is the explosion and demand for bandwidth and related infrastructure to support it. Our timing products, one of our most promising growth areas, was down modestly off a record quarter in Q4, but up more than 20% compared to Q1 last year.

Carrier infrastructure investments have been slow to materialize but we've been growing the business by expanding our content and communication systems through new product introductions and by adding new customers in embedded and consumer applications. Timing is leading our design win growth with wins at record levels. Near-term, timing revenue is expected to grow into Q2 and we're incrementally more positive on the back half as the communications market begins to show some signs of improvement. The access business was about 18% of revenue and was up year-over-year, but down sequentially by mid single digits, as expected, due to some choppiness in our voice over IP business. Modems and Power over Ethernet remain stable. We expect the access business will decline into Q2 as our modem business and set top boxes continues to wind down.

Now for Q2 guidance. We expect revenue will be between $140 million and $146 million. The revenue outlook is driven by the decline in businesses that we have been exiting for a number of quarters. Combined, FM tuners and handsets, our touch controller and modems and set top boxes will be down 50% sequentially which is over $10 million. As we exit Q2, these declining businesses will drop to under 8% of revenue and we believe they will reach a steady-state by year end, becoming a negligible headwind. Our remaining products are conservatively forecasted to grow about 6% in Q2 which will be driven by our key investment areas MCU, timing and broadcast. As Bill mentioned, we expect gross margin to improve with mix by about 100 basis points to 61% to 62%. We anticipate operating expenses will be up about $1 million and our tax rate will be about 17%. Therefore, GAAP EPS guidance for the second quarter is approximately $0.30 to $0.36 and on a non-GAAP basis is $0.46 to $0.52.

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

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.

Nice job on the quarter. Bill, just following up on the gross margin commentary for the second quarter up 100 basis points, can you provide some color on what is driving the change? Is that a single quarter dynamic or are the underlying drivers something that carries over into the back half of the year?

Thank you, Craig. Good morning. The margin improvement is really mix driven as in Q2, broad-based business will again accelerate and take a larger share of the quarter than it did it Q1. That trend is solid for the remainder of the year. I think we will see this improvement in gross margins sustained in the second half.

Thanks for that. Tyson, a product question for you. The microcontroller business obviously impacted by a business wind down we have expected for some time. Last year you announced the 32-bit MCU product group, can you give us an update on how that is tracking and how you expect that to contribute to both this year and beyond this year?

The 32-bit story, we're shipping our wireless products which include 32-bit processors, and we announced our first three product families last year in 32-bit. We are having a lot of design win activity and a lot of customer activity around all of those products. The contribution this year is going to be modest, relative to the overall size of the MCU business. These broad-based businesses take some time to build. So the contribution this year will be modest outside of the wireless, although the wireless is showing nice traction and growth into the second half. But it is really more of a '14 and '15 story on the 32-bit as we line up the wins and those ramp into revenue. It just takes time.

Just as a follow-up on the wireless comment. As you look at the integration of Ember and the progress that you're getting with that product in the marketplace, how do you think about the performance of that business as you go through 2013?

We are very excited about the wireless business in general. It is one of our strongest growers coming into 2013. The addition of the Ember team and the integration of that with our existing products is going, I would say, better than planned. In terms of driving business going forward, the expansion of the Internet of Things and all the different applications that go around that, from the business that we have on the cable side driving home automation security, the energy metering, a lot of the different home automation, both the standardization activity that is going on there, as well as the variety of applications, it is a really exciting area for us. Both from an integration standpoint, from a business standpoint and just a future growth standpoint, I couldn't be more excited about that acquisition and our prospects going forward.

Thank you, guys.

Srini Pajjuri, CLSA Securities.

Thank you. Good morning, guys. First on the video side, it looks like compared to last quarter, your tone is a bit more bullish about -- is this driven by more design wins on the second-tier front? Also, if you can update in terms of market share where you are and what your target is exiting this year?

Right. We had a great 2012 and going into 2013, first-quarter was up 8%. Looking at another up quarter in Q2 on video. We've talked before about expanding our share. We were about one third of the market last year and we're are going to be expanding our share, our unit volume and our revenue this year relative to last. A good indication of that is that our total wins are up 2X year on year and that is really reflecting the share growth that we are anticipating in China and in Europe going into '14. Really that growth this year is driven by our expansion from the tier 1 down into the tier 2 and tier 3 makers in China and Taiwan. Again, the video business has performed very well. I feel very good about where we are in '13 going into the second half. And going into '14, the design win traction and just everything is looking very positive for us at this point.

And maybe if you can give us a little bit of an idea how the competitive landscape is changing within video. And also, if you could talk a little bit about the pricing and what you're seeing in the market in terms of pricing dynamics. That would be great.

We've optimized our portfolio, both with the tier 1 makers with some custom devices and in the tier 2 and tier 3 with lower end devices. We have cost optimized solutions. I would say that the pricing environment is fairly consistent with what we have seen in past years in terms of year on year declines going from '12 to '13 to '14. We actually feel good about the pricing and competitive environment. You've got companies like NXP who have been in China for a long time but are in BiCMOS, more of an analog approach, and our digital architecture has some fundamental advantages in terms of cost and performance that is really helping to drive all of the makers over to our digital CMOS solution rather than the analog solution. We feel from competitive standpoint that we are very well positioned and I think that is going to reflect in our market share and our design win momentum as we more through the year.

Great. Last question, Tyson, on the timing fronts, I know you certainly sound a bit more optimistic about the second half based on communications. Can you give us an idea what percent of the timing business goes into communications? What signs are you seeing out there that give you that confidence? Thank you.

The majority of the revenue remains on the communications side. It is not -- call it three quarters, something like that. We have been expanding our portfolio at the high end. And have been getting a lot of design wins in the communications market. It's a little bit hard to separate end market recovery from just share expansion versus the incumbent competitors there and the broadening of our portfolio. But that being said, I'm quite positive on the second half. There does seem to be some signs that there is some improvement in the end market and we were layering on top of that the expansion into the embedded and consumer areas that we have been working on for some time. So overall timing is one of our high investment areas and one that we think has a lot of growth going into the back half and into '14.

Right. Thank you.

Blayne Curtis, Barclays.

On the consumer audio, that business seems like it has come back. Obviously the handset FM hung around and it has been known to go away, but can you talk about whether you see outside of handsets, whether you see consumer audio growing this year? And if you can outline some the drivers there. Thanks.

We were up 5% quarter on quarter. Going into Q2, we have got the FM tuner in handsets, in the Galaxy S3 model and going to the S4, they removed FM. That is coming out. That transition is probably a little ahead of where we thought. We were up 11% year on year. We think that audio is going to grow this year over last despite this headwind in terms of FM handsets, and that really reflects growth in automotive, which is one of our long-term strategic businesses. On the consumer side, we continue to garner a healthy share of design wins and expand that portfolio. We just announced the wheel tuned radio, going after that analog radio market and then the digital radio market, which is already contributing to radio, to revenue, is also going to be part of that growth story in 2013 and going into 2014. So I think audio has turned the corner. We had a lot of business on the handset side and, I think, we very successfully have grown the consumer and are growing the automotive business to keep it moving in the right direction.

Thanks for that. Last quarter you talked about access being down 10% for the year, it came in actually up a little year-over-year. Does that outlook still hold true for the year?

Yes, it does. The access last year was down about 4% and I think year on year the decline in modems, although in Q2 was a little faster than we had expected, I still think the less than 10% is the proper thing to assume.

Got you. Thank you, guys.

Thank you.

Terence Whalen, Citigroup.

Good morning. Thanks for taking the question. This question is for Tyson. Tyson, it's your one year anniversary as CEO. I was wondering, how do you think you've executed against your initiatives that you set out a year ago? How do the initiatives change going forward in the next year? Thank you.

All right. Thank you, Terence. The goal when I took the job was to set the Company on a path towards high quality growth. And I think the exit from the touch controller, while somewhat painful here in Q2 as we see that revenue wind down and the redirection of the Company and the emphasis on our broad-based business, on our microcontrollers, timing, our power products, and the future integration of those devices together going after the trends that we mentioned in the call, I think that is playing out well. We are seeing increasing traction with our road map, and with the design wins in those areas. I think that is the growth driver for the Company going forward. And I am very pleased with the progress that we have made, both internally in our R&D efforts and in the market strategically and tactically. I think overall after the year, I probably still give myself a B. There's a lot of work going forward but I think we made some good progress over the last year.

Very helpful, Tyson. As my follow-up, I think the main concern with the business mix is the video tuner business for many investors. What is Silicon Labs doing today to ensure that once market share peaks and once Silicon's share of the TV market peaks, what are you doing today to ensure that the curve after that peak isn't a down 15% pricing curve? Are you able to diversify that product into other areas? Share your thinking on that, please. Thank you.

Right. I think we still have a little bit of time before we get to that 100% mark. We had talked this year about Silicon tuner penetration being two thirds or greater. I think that story will continue to play out this year and next year in terms of Silicon tuner penetration. Today, I still believe that our primary competitors are the CANs. I think that has been what has been fundamentally driving the pricing curves and now we are running into some of the Silicon tuner vendors as well. But I think that actually the pricing curve will slow down a little bit once that penetration hits 100%. I also think it is very important to have a mature, proven solution that works in every city and country around the world in every standard. Given our market share at the tier 1 and our penetration in the market, that will certainly be a competitive barrier to entry.

I think that you also have to put our intellectual property in there. I think a lot of our businesses that have been sustainable over a long period of time had a strong intellectual property component, and I think that is an important piece of the sustainability. Just in terms of -- we have been very aggressive about driving the road map in terms of our own costs and are optimizing the functions specific to what each segment of that TV market needs and that process continues. And I think we've got some SAM expansion somewhat outside of the TV market that is possible, that makes this an important brick in the business going forward and one which I think we will be able to sustain over the long term.

Thanks. And congrats on the anniversary. Thank you.

Thank you.

Ian Ing, Lazard Capital Markets.

Thanks and good morning. You talked about MCUs and wireless being a powerful combination currently in smart metering applications coming up and things like Internet of Things and machine to machine applications. How do you think the latter two applications play out in the coming quarters and years? Could they cross smart metering at some point? Thanks.

Yes. I think if you look at the projection for the Internet of Things and all the machine to machine communications, the unit volumes will exceed handsets in the second half of this decade. And I think that the combination of MCUs, wireless, power and sensors, and the integration of those into cost-effective CMOS solutions, is going to be the key to dominating that space. I think that Silicon Labs is very well-positioned with those silicon platforms, as well as the software platforms to be able to do that. So it's one of the most exciting areas of investment for us, both from an R&D perspective and from a market perspective. And I think that the growth in those areas is going to be one of the key bricks in our foundation as well going forward as we march towards $1 billion.

And my follow-up is, could you add more color on the softness in the industrial markets and the inventory mismatch? Is it related to demand or inventory destocking or particular programs rolling off?

Ian, we simply were caught by surprise with a customer that reduced demand on a select part number, so we had built inventory in anticipation of that requirement and it evaporated on us. It is a continuing, shipping product so we will burn that inventory off, but as I said in the prepared remarks, I think it is going to take a couple of quarters to accomplish that.

Thanks.

Anil Doradla, William Blair.

The 50% decline in some of those legacy businesses, touch, FM tuners, modem, was that part of a concerted strategy? Or, was that a natural evolution?

That was a natural evolution of just the product cycles that those were in. The touch was in the Galaxy Y handset platform at Samsung, and so that is winding down, again, a little faster than we had anticipated but in line in terms of where we thought the year would end. The FM tuners and handsets, again, was another Samsung set of handsets, the Galaxy S4 and they are moving to the S4, I think, fairly rapidly. On the set top box side, a number of our high-volume set-top box customers are moving from higher speed modems to lower speed modems and a few of the models, they have debundled the modem altogether for some of the emerging market applications. Those all really hit us at the same time in one quarter. I thought it was going to be spread out a little bit more through the year, but that is the way it ended up. It is about $10 million in one quarter that we are taking a hit.

Part of this is simply the new handset from Samsung is enjoying rapid acceptance in the market and they are making their own conversion to their next generation product more rapidly than, I think, they had even planned on six months ago.

Okay great. As a follow-up, Tyson, when you look at the communication segment with respect to your timing, can one make a case in favor of your timing products on the higher end products of infrastructure? In other words, with 4G deployments being more small cell oriented, is there less content or no content for your timing product line?

Today most of our timing products are in the core network, not as much on the wireless side. But the deployment of wireless drives a lot of core network upgrade, with the smartphone and LTE higher bandwidth with the applications. That being said, in the base stations themselves, you have a core network connection and you have the wireless connection. And we see opportunities increasing in both areas actually. So it's -- sure, you have some additional deployments on the small cell side, but I do not believe that in any way diminishes the timing opportunity that we are looking at.

Great. Thanks a lot.

Vernon Essi, Needham & Company.

Thank you for taking my question. One sort of macro question. I think everything has been covered here. I was wondering if you would give us some insight on the MCU market and how things have been shaping up into 2013? What I'm trying to understand is what demands you are seeing between newer products that you've introduced more recently versus, say, the older legacy products as perhaps to read into some of your competitors as well? Thanks.

As you know, the microcontroller business is highly diverse. It is spread across, in our case, industrial communications and consumer fairly evenly. I would say that on the 32-bit side the opportunities are similar. We have a low power line, we have a connectivity line, a general-purpose line, and then a wireless line. I would say there is a lot of activity in low power and in wireless. I think there is a strong synergy between those and a lot of the applications are running off of batteries and a lot of the Internet of Things, just smaller type applications, tend to be very power sensitive. So that's been an important driver on the 32-bit side and then the synergy between wireless and microcontrollers and a lot of bundling going on there. But I think just in general, in the broad-based piece, I would expect that the 32-bit is very similar to our 8-bit in terms of the diversity.

Have you seen any -- to back up a step here -- have you seen any differences or changes in demand? Obviously you are more on the leading edge with the design activity, but on some of the older legacy products that are out there, has there been any shifting, if you will, heading into 2013 versus where you might have thought it would land maybe three or four months ago?

Yes, I think that Q1 the industrial was, I think, a little bit muted in Q1 compared to typical. So if I had to say anything, I would probably put it in the MCU area of industrial was not as strong as it normally is and then you have some typical seasonality on the consumer side. I see that coming back in Q2 though. I'm incrementally optimistic about the health of the markets going into the second half across the board really. The industrial weakness in Q1 was a little bit of an anomaly that I think was some small indication of what is going on.

Okay. All right. Thanks.

Thank you.

John Vinh, Pacific Crest Securities.

Thanks for taking my question. A follow-up on the inventory question, can you clarify what product family the inventory mismatch came in?

We are not going to do that, specifically because we do not want to talk about a unique customer's situation. Suffice it to say, this is a shipping part and we have other demand for the product. We will work this inventory down, as I suggested, over a six month period of time.

Great. Thank you. My follow-up for Tyson is, you talked a little bit about the opportunity in FM auto longer-term. I'm wondering if you can give us a little bit more color about how you expect that opportunity to ramp in the near term. Sounds like it is more of a second half opportunity at this point.

The automotive business is ramping sequentially nicely through the year. I think we will be up almost 2X year on year in terms of the revenue in the automotive segment. All this starting off of a smaller base. We introduced our first product in 2009. Again, it is another one of those businesses that takes a fair amount of time but we are starting to see a nice number of tier 1 wins in the US and in Europe and some traction in Japan finally. I think there is about 100 million car radios shipped per year, some of those have multiple tuners in them and they are multi-dollar ASPs. You have an emerging trend towards digital radio and so the announcement we made this week in terms of our consumer offering will extend into automotive over time. I think that is going to be a very nice solidly growing business for us over the next number of years. There is really no end in sight, I believe, in terms of the market opportunity there. It just takes some time to build.

Great. Thank you.

Thank you.

Tore Svanberg, Stifel.

First question, if we exclude the $10 million legacy business for the June quarter, can you just talk a little bit about your visibility right now, either by bookings linearity or how you feel about your backlog?

So, Tore, the remaining businesses we're forecasting to grow at about 6% quarter over quarter into Q2, which we think is a relatively conservative guide but consistent with what we would like to see seasonally in a second quarter. Our bookings performance in the first month of the quarter has been pretty solid. So we have been above unity on book to bill and the status of our visibility for the quarter is good and kind of consistent with historical practice. We still certainly have terms to book this quarter, so by no means is it in the bag, but as we sit here today, our position for the quarter relative to this guide looks to be as good as we normally can be.

Very good. My follow-up for Tyson. Tyson, you mentioned you are now starting to get into the motor control market. Can you elaborate a little bit on your entry there, please?

Yes, there is really two plays in the motor control market, we have got our isolation and power products, so the motor controls and certainly in the industrial segment are ones that are plugged into the AC power lines. Our power products and the unit capability that we have there to provide isolation and replace optocouplers is an important opportunity, and so we are seeing some good design win traction there and are also driving some products on the road map to address those applications specifically. And then on the microcontroller side, both small motors and the industrial motors and the algorithms that go around that, is another key opportunity for us. So we think that in terms of one of the verticals, both really in this broad-based segment, that is an important one to address and it's a broad range of different types of applications and technologies that really highly values the mixed signal capability that we bring to bear.

And will you eventually break that out? Or, is it just going to be under either isolation or MCU?

That will be a combination of microcontrollers and power, so the -- it will be included in the broad-based segment for sure.

Very good. Thank you so much.

Steven Eliscu, UBS.

First part question just on inventories. What level do you want to get back to? You were in the low 60s the first part of last year.

It's easier to answer that question in the context of turns. We are at about a 4.1 turn ratio today, we would definitely like to see that number in the mid 5s, so we have a way to go to get to our optimal inventory level. That wont happen in Q2 but we hope to return to a model level of inventory performance before the end of the year.

Okay, that is helpful. I look historically, I know that when you look at seasonal growth, it is all over the place. Q2 growth, if I take the last five year average, it has been more of a high single-digit. If I compare that to the 6% growth that you are guiding, excluding the decline in legacy businesses, it still seems to be a little bit short of that. You did talk about industrial being strong but communications being weak. Is there any other dynamic that perhaps is limiting the growth in the sequential growth in Q2?

No, I do not think so. When we look into the Q2 guide, we are attempting to be prudent and give you a number that we feel sure we can hit. There is no unique dynamic going on right now that would depress 2Q from a seasonal point of view for the core businesses.

Just one last question, more strategic question, on Internet of Things. This seems to be a very hot area. Obviously you are not the only one talking about it. With regards to more broad-based suppliers such as Texas Instruments or Microchip, how do you believe you can be differentiated versus them that have a much more broad product line?

I think fundamentally our differentiation boils down to our mixed signal design capability. I think we've had a unique ability to put these very difficult analog problems in a standard CMOS process and applying those into broad-based markets like microcontrollers and timing and power. I think where TI might be selling a bundle of a bunch of analog components with a microcontroller, our strategy is to integrate a lot of that functionality into a device and have a high value proposition. I think against -- well, certainly against the Microchip in the 32-bit space, they have not chosen ARM and I think that, that is going to be a drag. I think they also do not have the same level of wireless and RF capability that we have. I think that we've got some key advantages which really get down to the core capabilities of Silicon Labs, of our mixed signal design capability. I think that is going to be what propels us in terms of market share growth going forward.

If I can sneak one quick question in here on the motor control opportunity, what do you view as that TAM for that opportunity?

The TAM is certainly well north of $1 billion. The products that we have that are targeted at that market today are probably only addressing maybe 20% of that TAM. I think that going forward with some additional product R&D activities, we will be able to expand that SAM to a larger fraction going forward.

Great. Thank you.

Thank you.

I would now like to hand the call back over to Shannon Pleasant.

Thank you and thank you very much for joining us. This now concludes today's call.

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