Silicon Laboratories Inc (SLAB) 2015 Q1 法說會逐字稿

Good morning ladies and gentlemen my name is Ryan and I will be your Conference Operator today. At this time, I would like to welcome everyone to Silicon Labs' first-quarter 2015 earnings conference call.

(Operator Instructions)

I would now like to turn our call over to Mr. Jalene Hoover. Please go ahead.

Thank you, Ryan.

Good morning, everyone, and thank you for joining us this morning. I am joined today by Tyson Tuttle, Chief Executive Officer, Bill Bock, President, and John Hollister, Chief Financial Officer. We will discuss our financial performance and review our business activities for the first quarter. After our prepared comments, we will take questions.

Our earnings press release and the accompanying financial tables are available on the investor section of our website at www.silabs.com. This call is also being webcast and a replay will be available for two weeks.

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 and that information will likely change over time. By discussing our current perceptions of our markets, 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 conditions. We encourage you to review our SEC filings, which identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

Also the non-GAAP financial measures 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 more 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.

Thanks, Jalene, and good morning, everyone. We're hitting the ground running this year with record revenue in all of our growth businesses, included our Internet of Things and Infrastructure product categories. Broadcast automotive also established its sixth consecutive record revenue quarter. I'll talk more about our product developments, market opportunities and business trends shortly. For now, I'd like to turn the call over to John who will review our first-quarter financial results and guidance. John?

Thank you, Tyson. Before I talk about the results for the first quarter, I'd like to announce some changes to the products categories that we use for IR purposes. Effective this quarter, we will specifically break out the two primary growth drivers from our broad-based category which are the Internet of things and Infrastructure categories.

What we previously called MCU wireless, sensors and analog will now be called the Internet of Things. The Infrastructure category will include our timing and isolation products for the communications, industrial and green energy markets. There are no changes to our Broadcast or Access categories, and we will continue to report on those as we have been doing. This morning we also posted an updated IR presentation in the investor relations section of our website that details these new categories by quarter going back to FY12 through Q1 of this year.

We are pleased to announce that first-quarter revenue and earnings exceeded our expectations with revenue reaching $164 million. Total Q1 revenue was up 12% year on year including contributions from the acquisition of Bluegiga, or 10% organically. Our strategy to accelerate the Company's growth performance by investing in large diversified and high-growth markets is working.

Internet of Things revenue hit a new high in Q1 at $61 million, up 6% sequentially and 26% year on year. During the quarter, our 8-bit, 32-bit and wireless products all delivered strong performance. Additionally, revenue from the sale of Bluegiga modules was near the top of our guidance range for those products. Q1 IoT revenue represented 37% of our revenue mix, up from 34% for 2014.

Infrastructure products had an outstanding quarter and represent the primary driver for our strong gross margin results. First-quarter revenue was $30 million, up 10% sequentially and 25% year on year. Timing and isolation each delivered new records. Infrastructure represented 19% of Q1 revenue, which is consistent with 2014 levels.

Access products were about flat in Q1 coming off of a strong Q4 and ended at $27 million, or 16% of total revenue. As we expected, Broadcast products were down in Q1 and ended at $46 million, or 28% of the mix, reflecting seasonality in consumer partially offset by a record quarter in automotive.

We are pleased to report that the administrative law judge overseeing the ITC investigation initiated by Cresta Technologies has issued a notice of initial determination in Silicon Labs favor. The judge found that all patent claims asserted against Silicon Labs were either invalid or not infringed. This finding is good news for our customers and for our consumer Broadcast business.

We continue to grow channel revenue with distribution representing 64% of sales for Q1, up about 2 percentage points from Q4. We had no customer greater than 10% of total revenue for the quarter. Geographically growth in the Americas and Europe was most significant reflecting strength in industrial and consumer markets driven by IoT products.

Non-GAAP gross margin for Q1 exceeded expectations due to the strength in infrastructure revenue and ended at 60%. Non-GAAP operating expenses for Q1 were on track at around $71 million. R&D expenses were $38 million, reflecting seasonally fringe costs offset by lower cost associated with new product introductions.

SG&A ended at $33 million, also reflecting the bump in fringe combined with higher variable costs on higher revenue and offset by reduced legal costs. Non-GAAP operating margin was 16.8% for the quarter.

Our non-GAAP effective tax rate was in line with our expectations for the quarter at just under 15%. Due to the combination of strong revenue, product mix driving higher margin and in-line OpEx results, our earnings for the first quarter exceeded our expectations at $0.54 per share non-GAAP.

On a GAAP basis, first-quarter gross margins were 58.9%, which reflects the fair value write-up of Bluegiga inventory. R&D investment increased slightly to $47 million, and SG&A expenses increased to $42 million resulting in GAAP operating income of $7 million, or 4.4% of revenue. GAAP EPS for the quarter ended at $0.15 per share, which was slightly above our guidance range.

Turning now to the balance sheet, we ended the quarter with cash, cash equivalents and investments, totaling $269 million, which was down approximately $74 million from the end of the year. During Q1, we closed the acquisition of Bluegiga and also funded the hold-back release and 2014 earn up commitments on energy micro, which combined represent $83 million of capital deployed for strategic M&A.

We also completed around $10 million of stock buyback in the quarter and have $83 million remaining authorized. Cash flow from operations in the first quarter was $24 million. Accounts receivable declined to $67 million for 37 day sales outstanding, which is a multi-year low. We continue to have no known collection or bad debt issues.

Inventory levels increased during the quarter to $61 million with turns declining to 4.4 times. This increase in inventory reflects planned billed-a-heads for the year to support revenue growth as well as safety stock for certain supply chain transitions that are taking place this year.

Overall, we are comfortable with these inventory levels, which are needed to support growth in the Internet of Things and Infrastructure markets, which carry higher inventory requirements than more vertically-oriented markets. Channel inventory increased slightly to 51 days.

I will now cover second-quarter guidance. We expect second-quarter revenue to reach a new high for the Company in the range of $164 million to $169 million, with another record in our IoT products reflecting sequential growth of at least 10%. We anticipate continued strength in our Infrastructure products with Q2 revenue flat to slightly up.

We expect Access to be about flat. We expect Broadcast to be down in the second quarter with a decline in consumer partially offset by continued strong performance in automotive. In consumer, we see what we believe is a temporary oversupply among our primary TV tuner customers.

We anticipate second-quarter non-GAAP gross margin will be approximately 60%, plus or minus 50 basis points. In Q2, we expect our non-GAAP operating expenses to increase to around $73 million due to higher tape out costs, hiring and a full quarter of Bluegiga's operations.

Our non-GAAP effective tax rate is expected to be stable at around 15%. We estimate second quarter non-GAAP EPS will be in the range of $0.50 to $0.56 per share and GAAP EPS will be in a range of $0.11 to $0.17 per share.

Now I'll turn the call back to Tyson.

Thanks, John.

We are very pleased by our strong start in what is typically a seasonally down quarter and by the progress we have made over the past year. Our momentum is increasing in target growth markets and our Q1 revenue grew at more than 12% year on year driven by the growth in our IoT, Infrastructure and Broadcast automotive products, all of which delivered double-digit growth year on year.

Our Internet of Things products represented 37% of first-quarter revenue growing 26% year on year and establishing a new record. Successful IoT solutions require energy efficiency, connectivity, integration and simplicity. Silicon Labs is uniquely positioned to provide these ingredients with our ultra-low-power MCUs, our diverse portfolio of wireless connectivity solutions and our ability to integrate all these capabilities into system on chip implementation backed by software tools that greatly simplify the design process.

Our strategy is to target the heart of the system, the SoC, and to ultimately control the integration path. Finally we've invested in a robust distribution channel to efficiently with connect many thousands of customers in the low touch way.

The ability to support a wide range of wireless protocols is especially important in designing connective devices for the IoT. Bluetooth Smart is the most widely used wireless protocol for power sensitive personal area networking applications such as wearables. According to IHS, Bluetooth Smart will represent 42% of the total low-power wireless unit volume in 2018.

During Q1, we acquired Bluegiga to accelerate or Bluetooth Smart road map and to enhance our IoT solutions with the adoption of Bluegiga's module strategy. This opportunity represents incremental SAM for Silicon Labs and adds to our industry-leading connectivity portfolio including ZigBee, Thread and sub-giga hertz.

Less than a month following our acquisition of Bluegiga, we announced our new portfolio of Blue Gecko wireless SoCs, embedded modules, software stacks and development kits for the Bluetooth Smart market, which addresses the largest fastest-growing low-power wireless connectivity opportunity in the IoT. Our new Blue Gecko portfolio will provide developers with a rapid on-ramp to the IoT and flexibility to begin development with modules and transition to SoCs with little to no system or software redesign.

The first in a family of multi band, multi-protocol wireless MCUs optimized for the IoT, our Blue Gecko SoC solution provides industry-leading energy efficiency and superior RF sensitivity with a best-in-class Bluetooth Smart software software stack to help developers reduce power costs and time to market. In Q1 we also introduced the EZR32 family of sub-GHz wireless MCUs, delivering an unmatched combination of energy efficiency and RF performance for applications ranging from smart metering to the connected home.

Turning now to the MCU market, we see strong demand for our 8-bit and 32-bit products in a wide range of applications including the IoT. Leading MCU vendors are advancing power efficiency and integration features of 8-bit solutions to meet market opportunities. According to IHS, the 8-bit market will grow from $6.7 billion in 2015 to $7.6 billion in 2018 comprising more than a third of the annual MCU market revenues.

In Q1 we launched our new EFM8 MCU family, which includes three lines of highly integrated peripheral-rich 8-bit MCUs optimized for exceptional price performance, ultra-low-power touch control and USB connectivity. Our MCU customers embrace our proven pipelined 8051 core mixed-signal integration and peripheral mix. And developers appreciate how easily they can get their 8-bit designs up and running with our Simplicity Studio development environment, while meeting very tight power, cost and footprint constraints.

Moving onto Infrastructure, our timing and isolation products grew 25% year on year, representing 19% of our Q1 product revenue. Timing is a strategic area of investment as we enhance our high-performance frequency flexible portfolio to meet the stringent demands of core network applications and demand expanded to data centers and wireless base stations.

First-quarter timing revenue exceeded expectations by establishing a new record in growing 20% year over year, driven by strength in our telecom customers. We have delivered a strong pipeline of new timing products over the last six to nine months, resulting in a strong market contraction and design win activity. As the communications market transitions to higher bandwidth networks, the demand for advanced timing technology is increasing. We have significant market share with Tier 1 customers in high-speed applications such as 100 gig networks. And as this technology shifts from long haul to metro networks, we expect share gains to follow.

Our isolation products established record revenue in the first quarter, growing almost 50% year on year. Isolation products are gaining traction in infrastructure where they are used in power supplies for high-speed switches, servers and base stations. And also widely deployed in industrial automation and green energy applications.

In Broadcast, revenue from our consumer and automotive products was 28% of first-quarter product revenue. Broadcast automotive set a new record in Q1 reflecting growth of more than 60% year over year. We expect Broadcast automotive to set another record in Q2 as we continue to gain share driven by Tier 1 design wins and growth in Europe, China and North America.

As a leading tuner supplier for Broadcast applications with more than 1.4 billion radio on a chip ICs shipped to date, Silicon Labs is committed to helping automotive OEMs and Tier 1 suppliers enhance the performance of car radio infotainment systems while reducing cost and complexity. In Q1 we introduced our new family of AM/FM receivers and digital radio tuners, which raised the bar for radio reception performance and provide a complete platform for developing scalable systems for the global infotainment market ranging from entry-level car radios to multi-tuner multi-antenna designs.

Reflecting back on Q1, we had a great quarter filled with a lot of good news. Our growth products delivered record revenue, we completed another successful acquisition rounding out our wireless portfolio. We received first silicon of the industry's first multi-protocol multi-band IoT SoC, which we announced for the Bluetooth Smart market with a working demo at the Embedded World Conference.

And we launched 10 product families in Q1, bolstering our pipeline of solutions for the IoT, Infrastructure and Broadcast markets. We continue to receive positive feedback from our customers and echo system partners that we're on the right track with our IoT strategy, delivering the energy efficiency, connectivity, integration and simplicity that developers need to bring their innovations to fruition.

Clearly the IoT has tremendous momentum and we believe the best is yet to come as we expand our SoC platform and software solutions. Thank you for your time and attention.

Before we take your questions, I'll turn the call back to Jalene. Jalene?

Thank you, Tyson. Before we open the call for the question-and-answer session, I would like to review the investor conferences we will participate in this quarter, including B. Riley and Company's 16th Annual Investor Conference in Hollywood on May 13; The Stephens' 2015 spring investment Conference in New York on June 2; and William Blaire's 35th Annual Growth Stock conference in Chicago on June 9.

Lastly please note that Tyson's keynote address from this year's Embedded World Conference is available on YouTube. I have provided a link in the investor relations section of our website at www.silabs.com.

(Operator Instructions)

Harsh Kumar, Stephens.

First of all let me say congratulations, these are spectacular results in light of what we're seeing in the industry with everybody missing numbers, so congratulations. Quick question for you, could you clarify for us in IoT which are what are some of the largest end markets for your Company?

Yes Harsh, this is Tyson, if you look at the largest markets for IoT you've got things traditionally for us have been like metering, so smart metering energy meters, water meters, gas meters, heat allocation cost meters. You've got things like wearables, so all of the wearable devices we have good traction there with our microcontrollers.

Home automation and security, actually those are really two separate areas, but the home automation area is quite hot right now. And you have home automation and security systems being rolled out by a lot of the MSOs, as well as the retail channels. And then you just have a broad range of industrial applications, everything from supply chain RF ID, shelf labels, you've got factory automation applications. So really I think of the IoT as thousands of different applications, but those are some the larger ones that we see ramping into the market today.

Appreciate the color, Tyson. And then one more for you in Infrastructure, do you feel that this is a real turn that is sustainable for several years or is there something going on that maybe is one-time related here? Any color would be appreciated.

Harsh, we've had very good design win traction for both our power isolation products and our timing products over the last number of years. And both of these markets tend to take a little while to ramp into production. So we've had visibility into the strength of the design win traction there, and we believe that this is an indication that that design win traction is taking hold despite the fact that the markets are not necessarily, and particularly the communications market, is not necessarily as strong as we would like it to be. And it's been in a fairly weak state over the last couple of years. So we believe that this growth is an indication of share gains and we believe that those share gains are sustainable going forward.

Hey, guys, congratulations again. I'll get back in line.

Suji De Silva, Topeka.

Hi, Tyson, hi, John, congratulations on the results. Can you guys review the growth rates you're expecting particularly for IoT and then some of the other areas, timing, power just understand how the overall growth of the Firm should track?

Certainly Suji, this is John. We're seeing attractive growth rates in the Internet of Things and Infrastructure markets and we see we think double-digit performance is sustainable in those markets in particular.

In the Broadcast area, we think they automotive product category can continue to gain share and similarly post solid double-digit growth. On the consumer side, it's more of a stable situation with substantial market share having been realized here. And of course we indicated down indication for Q2. And an Access that's been a slow decliner for us, we've anticipated roughly a 5% to 10% decline annually for Access. We did better than that in 2014 but would maintain that view going forward here.

Great and the other question I have was in the prepared remarks you talked about supply chain transitions impacting, can you talk about the gross margin impact there, near term, long term what those are if you could clarify that? Thanks.

Certainly we don't anticipate gross margin effects there really this was just some transitions related to fabs where the availability of supply is ceasing we needed to accumulate a little more stock to assist our customers with the transition, but we do not foresee a gross margin impact from that.

Great thanks, guys, congratulations again.

Craig Ellis, B Riley.

Thank you very much for taking the question and I'll echo the congratulations on the fine performance. The first question is on the Infrastructure business, as we look at a re segmentation of what was the Broad-based portfolio into IoT and Infrastructure, is there anything that's changed with the Infrastructure components, their strategy from an end market or for a product road map standpoint?

Craig, this is Tyson. If you look at the Infrastructure category within that we have combined our isolation products where the majority of the revenues coming out of communications type allocations, power supplies those have a broad range of applications, and that's been an important investment area for us for the last number of years.

No change in strategy there, going after the power markets in a lot of served by opto couplers. And we have some very interesting technology there that we've developed and that has been gaining share over a long period of time. So no change there, we wanted to maybe highlight it a little bit more given the fact that it has reached a significant scale.

And then on the communication side, our timing business again delivered a record quarter in Q1. Is doing very well in particular in the high end applications and so the strategy and timing as we've indicated in the past has been to focus more on those higher end applications where we believe the margins are very strong and where we have some very differentiated technology.

So I would say that on the timing side we have refocused our strategy around the high end and deemphasized some of the low-end applications which we believe is the prudent set of priorities if you really look at the business.

That's helpful, Tyson, thank you. And I'll stay in the same area with the follow-up question. There's been from broader semiconductor companies signs of demand weakness, I think it's more on the base station side. But I believe the Company historically has had some exposure there. Is the Company seeing anything in that regard or is mix really away from that type of application and with the high end focus really catching things that are seeing stronger order trends versus what some others are seeing right now?

The revenue that we have in our timing area is dominated by core network applications and we see strong ordering patterns, no indication of weakness to date in that area. We do have some traction in wireless base stations but those types of wins have not yet materialized in terms of revenue. So we see pretty strong traction with wireless base station customers with our next generation of products but have not yet seen that in the ordering patterns, so I couldn't really comment on that. But going forward, we think that's going to be an important component in the growth of this business.

Thanks and good luck.

Thank you.

Anil Doradla, William Blair.

Building up, Tyson, on that question on the timing, so it clearly seems that you guys are gaining quite a bit of strength on the core networks but you are seeing some weakness in the base station, is that a fair way to characterize it? And when you look forward, what do you think your visibility is beyond a quarter out on that timing segment?

Anil, this is Tyson, following up on the previous answer with Craig, we don't have a lot of business today in the wireless area, so I can't really comment on weakness in the base station area. But that would not have a material impact on our revenue in the second quarter.

And in terms of the overall visibility into the second half and really all I can say is that the -- our design win traction has been solid and the ordering patterns that we see here in Q2 as being healthy. Looking out into the second half, really can't comment on that any further at this point.

And Tyson, I think last quarter when you were talking about broadcast audio for [year end] you gave a sense that it's going to be flattish, do you still -- that's especially on the non-automotive side, do you still believe that's going to be the case or do you think it's going to be down maybe 5%, 5% to 10% and this is all TV related?

Right so typically in Q2 we would see a lift on the consumer side due to seasonality. We are not seeing that this year, we had a reasonably strong first quarter, but in the second quarter in particular with some of our Tier 1 video customers we see an oversupply situation in their channel and a slowdown in ordering patterns in Q2 indicating that we really didn't have very good sell-through into the channel in the first quarter.

I think given some of the currency effects that are happening in Europe with the stronger dollar driving price increases and the resulting slowing sales of TV tuner or TV models there and our exposure to those models both from an ASP standpoint, content standpoint, and from a share standpoint being a little bit higher in Europe. So we see some slowdown in the consumer area really isolated to our Tier 1 TV customers.

So I think that I don't know how the second half is going to play out, it really depends on the seasonal sell-through in the second half. But I would think that given that Q2 is slowing a bit and we need to burn off some inventory that the consumer business this year will probably be a little bit down compared to what we had thought a quarter ago.

Great and by the way congrats once again, fantastic results.

Thank you.

Ruben Roy, Piper Jaffray.

Tyson, congratulations on the strong results and outlook. In terms of the reclassification of your segments looking at the IoT segment, can you talk about specifically the MCUs within that segment 8-bit and 32-bit and what the mix is today and what you would classify as IoT versus more traditional embedded markets? And when you talk about the longer term growth double-digit growth expectations, how that divvies up between those two areas? Thank you.

Okay, well thanks for the question, Ruben. The IoT category comprises all of our microcontroller, our wireless connectivity products including the Bluegiga products and our sensor products and there's some analog products in there as well that are geared towards power management.

Within the microcontroller area, you have 8-bit microcontrollers which has been business that we've been in for well over a decade and that business comprises it's in the range of about $100 million. And it's been a I would say a single-digit growth engine the last few years for us. And you'll notice that we just recently introduced our EFM8, 8-bit product family. We've actually been investing in our 8-bit business unlike a number of the competitors and we believe that that will be a nice growth business for us. But probably in the single digit moving into the double-digit range as we move forward here in the next few years.

The 32-bit area, our EFM32 products, the Gecko products, most of which we acquired through the acquisition of Energy Micro two years ago, those are growing very fast. We've set a record revenue quarter pretty much every quarter going back if I look at those products. This was a record revenue quarter and that's going back as far as the chart goes to last year.

So we've been ramping those products into a number of low-power applications and believe that that business stance to continue to gain share. It's also an area of heavy investment for us as a Company as we build out our next generation portfolio taking the energy efficiency to the next level as we introduce our next platform, both as microcontrollers and as microcontrollers integrated with wireless.

So in terms of the microcontroller mix, it's heavier biased towards 8-bit today but with the 32-bit being a much faster growing segment for us and a really important one for us. But our overall belief is that the 32-bit market takes a lot of the higher functionality but the 8-bit market is a place where our mixed signal technology and our capabilities can really help us gain share there, and it's a very, very large market opportunity for us as well,

Thanks a lot for that detail, Tyson, that's really helpful. As a quick follow up for John, on the OpEx you talked about higher tape-outs in Q2, any directionally longer term outlook as it relates to tape-out? Are you expecting further tape-outs in the second half of the year, how should we think about OpEx? Thanks, John.

Yes, Ruben, certainly we do expect further tape-outs in the second half of this year and really have no update or new information on the OpEx view. We had indicated up about 9% back on the January call for the year and have no updates to that information. But certainly as we continue to build out the IoT portfolio in particular we're going to have more tape-outs coming.

Got it. Thanks, John.

John Vinh, Pacific Crest.

A housekeeping question on the IoT business, can you break out or talk about what the Bluegiga contribution in the quarter was?

Yes, John, let's go back to, this is John Hollister, the guide we had given was around $3 million to $4 million, and we were near the top end of that. So it was just under $4 million.

Great.

And John, that was two months of the Bluegiga contribution in Q1. So moving through the remainder of the year we'll obviously have a full quarter of Bluegiga contribution in Q2 and throughout the second half.

Got it, thank you. And then my follow up is for Tyson. Tyson in your prepared remarks you talked about seeing strength in the industrial markets, and I think your commentary is pretty consistent with many of your peers in semis. There's been a little bit of consternation as you look at some of the end market companies and industrials that our starting to see a little bit of a slowdown there. Can you give us your perspective on what you're seeing in the industrials markets and if you have any thoughts on how to reconcile what we're seeing in semi industrials versus what we're seeing with industrial companies who are starting to see a little bit of a slowdown there?

Yes, we've got a couple different components of our industrial revenue. We've got our isolation power products where we've seen significant ramps in power supplies and motor controls, a lot of factory automation applications. And the ordering patterns there I would say are healthy, but it's buried a bit in a number of product ramps. So it's a little bit hard for us to separate out the cyclical component of that.

On the IoT side, we have a lot of traction on the industrial side of things like the metering, things like home security and automation are all there. And again we've got significant ramps ongoing with a number of customers within that space. But even if I look at the broader microcontroller business, we see healthy ordering patterns there.

With the sole point of visibility that we have in terms of weakness really focused on the consumer area in video in some of our Tier 1 customers. So I would say that from a market standpoint it's a combination of design win traction and growth layered on top of fairly normal ordering patterns that we see at this point

Great and then last question for me, John, you talk about channel inventories being at 51 days. What do you anticipate channel inventories doing in the next quarter, do you expect them to grow or stay flat? Thank you.

Yes, I would expect likely flat to perhaps slightly up. You look at the days calculation right now, it's up a bit but that's to be expected with a business that we anticipate -- where we anticipate continued growth. So we think this is all pretty normal.

Great, thank you.

Blayne Curtis, Barclays.

I wanted to ask now that you've had a partial quarter of Bluegiga under your belt, as you look out in terms of their existing customers being able to continue to support them and then the timing of bringing your own products within these modules, when do you think you'll be of the market there?

Yes Blayne, this is Tyson. In terms of supplying the existing modules, we don't believe that there's any issue in being able to procure components from our partners in that area and so we believe that that will continue without interruption. On the -- we've already designed and are in the process of putting into production a module using our Blue Gecko SoC and so that will be sampling out to customers shortly.

And we also will be introducing other components within the module family and introducing additional new products from Bluegiga as we march through the year. So within Q2, we will have launched and released a product using our own silicon with the Bluegiga brand as well as the Bluegiga software stack for Bluetooth Smart. And that's a very exciting opportunity for us in terms of the differentiation that that silicon gives to the Bluegiga module as well as the entry of Silicon Labs into this Bluetooth Smart market where we believe the revenue ramp there will be completely incremental to our SAM.

And it's a very exciting market in terms of the growth and the variety of applications where you're connecting devices into handsets. And really those types of applications value our low-power, our wireless integration and performance and feature set that we're able to deliver.

Great and then I wanted to ask you about the declines in consumer. You talked about inventory in video, did you have any idea how to quantify that and are you seeing any changes in pricing or is it purely a unit story here? And then the same kind of question with the audio side, is it purely demand destruction with the euro or are you seeing also inventory in that channel as well? Thanks.

This is really confined to the video area and to our top tier customers there. You'll see some of the reports coming out of the tier 1 TV makers indicating that sales were down in Q1 and that there is some indication of inventory. It's not an ASP or a margin or a share gain or loss issue, it's really just a matter of the sell-through in the in channel. We believe that during Q2 we will work that off and our hope is that as we return to the second half that we will see more normal ordering patterns. But there's nothing in terms of the change in our pricing or our market share there that is really the source of the issue.

On the rest of the video market, we have a number of ramps and actually see that as reasonably healthy. And we also see in the audio space actually very good performance in Q1 and good ordering patterns in Q2 as well. So in the consumer audio we don't really see the impact of the European situation but that could be due to share gains going on in that area. But that's a small contributor compared to the consumer video piece.

And then on the automotive side, we've seen very strong growth there, 60% year-on-year growth and continued ramps with Tier 1 customers on our car radios And that's offsetting some of the weakness on the consumer side.

Thanks.

Tore Svanberg, Stifel.

Yes, thank you and congratulations to the team on getting the Bluetooth Gecko SoC so quickly. And my question is on that product, when would you expect to start getting revenues from the Blue Gecko SoC and then also the SoC included in the module? And should we think of that as being an accretive event to gross margins or is it not going to be enough to change the gross margin mix at least in the near term?

Tore, this is John, we would expect the Blue Gecko SoC product to begin generating revenue sometime next year as we productize it later this year and really come to market and begin to earn design wins in the latter part of this year and early next year.

As far as the margin, I would expect that to be relatively consistent with our overall margin profile, of course it'll depend on the exact application and volume and so on but don't expect that to have a significant impact on the margin.

Very good. As my follow up I had a question for Tyson, Tyson in your investor presentation the new one you have on your website, you have a pretty nice drawing there when it comes to the IoT SoC and it seems like a simple drawing but obviously there's a lot of complex technologies that go into that SoC. So from a competitive advantage perspective and you obviously have all the building blocks now, how big an advantage do you think you have now ahead of some of the other potential competitors in the IoT markets?

Thanks for the question. That drawing does look a little bit simple, but there's a lot that goes into integrating all these components. You've got really the difference between the technologies that go into a handset where you've got multiple chips and each chip optimized for a specific function things like RF, power management, the various memories, all of the interfaces, and control interfaces. Those all have to go into a single chip implementation.

And so it's really the integration of RF with the microcontrollers with the memory, with the power management and that is something that Silicon Labs is just really, really -- we have a very strong history of doing that in standard CMOS technology. We were one of the pioneers in RF CMOS technology back in the late 90s. And today RF -- putting wireless into CMOS represents over 60% of our revenue with our wireless connectivity portfolio. But all of our broadcast, all the success we've seen there and all of our timing products are all based on high-performance RF CMOS technology.

So we believe compared to the traditional microcontroller companies that have been more analog and digital integration that we have an advantage at being able to put wireless in a very, very high-performance cost-effective way into the same chip as a microcontroller. And I believe that that's one of the key points in being able to build a successful IoT business.

And I'd add that on top of that you also have to -- the IoT is going to be thousands of different applications, tens of thousands of customers that we have to serve. So you'd have to build these SoCs in a way that are very general purpose. You have to have a complete portfolio of products and the tools and the channel with which to get them to market and to be able to scale efficiently over both the R&D side and on the sales side is really important.

And I think that we've got -- this is something that we've been targeting for the last five years and I think just if you look in terms of the strategy and in terms of the execution on that strategy, I think we've got a several year lead over what other companies have been able to put out into the market today.

So this platform that's coming out the Blue Gecko is the first of a family is really the embodiment of that strategy as well as the strategy we've undertaken from an M&A perspective with Ember, with Energy Micro and now with Bluegiga and we finally see this all coming together.

Thank you, Tyson, and again congratulations on the results.

Thank you.

Matt Ramsey, Canaccord Genuity.

Tyson, I would -- stepping back a little bit I'd like to get some of your perspective obviously you guys have done very well in the IoT business. There's been as is typical in semis these days a slew of M&A transactions that have gone on you guys have participated in some, there's been some very large ones on the NXP, Freescale deal in particular. Any comments you have on the competitive landscape from that perspective of any things that you might think change or help your Company or maybe provide more competition to your Company as a result of some these big deals particularly the ARM MCU space?

Right and certainly the NXP, Freescale deal was a big one, both competitors in the microcontroller space. I would say that the wireless component of both of their businesses was -- I didn't -- we don't view them as the primary competitor on the wireless side at this point. Certainly the larger scale may enable them to afford larger investments in this area. But I believe that the integration challenge there is going to actually provide an opportunity for us to be able to gain share.

We've certainly seen companies like CSR go in with Qualcomm, but again that we believe those companies are being more vertically oriented and not actually having a whole lot of success in a lot of these IoT applications. Again not viewing them as a primary competitor, but again over time with the scale of a large company like that.

So I think from a market lead perspective and a market traction perspective, given the significance of this revenue, 37% of our revenue coming out of this area and the focus that we have from an R&D and a strategy perspective, we believe that we're very well positioned against the larger companies. And I also just want to comment that a lot of the microcontroller companies have acquired wireless assets. You saw Atmel buying Newport Media. There's other examples of companies licensing or bring in wireless technology.

And I think that it's a very subtle point but being able to integrate wireless together with microcontrollers you have to be in the same process technology as your microcontroller, you have to have the flash memory integration and you have to figure out how to make all of the wireless connectivity work in the presence of all of that processing going on.

That's something like companies like Broadcom and Qualcomm and Silicon Labs has been very good at. That companies that have really looked at and gone after high-volume markets like cellular whereas it's much more complicated, if they're in different technologies, it's very complicated to put them in the same technology. And if you haven't done those together before you'll be running into a lot of challenge as you move forward in the execution. And that's something that I think we've figured out over time and have a lead in as well.

So it's -- there's -- it's really at this point all about execution of our strategy, getting out the portfolio, getting out the products and going out and taking market share. I think that the markets are going to be growing very fast and there's going to be room for a lot of players and we think that we're going to be able to take our fair share.

Thanks, Tyson, that's very helpful perspective. As a follow up I wanted to ask on the Broadcast business, obviously there's two different components of that business right now, the TV tuner stuff and some of the near-term challenges you might have mentioned there from an inventory perspective. And then also there's really strong automotive business. Two small questions there, first could you maybe quantify the automotive as the mix in Broadcast today? And second, as auto continues to grow is it possible that --

What was the second part of that, quantify the broadcast automotive and the second piece?

And the second piece is could that business return to growth --

I think you dropped off. Let me try to answer this, in terms of the mix between automotive and consumer today, it's at about 25% automotive, 75% consumer with the automotive piece certainly growing very, very fast. And John maybe you could comment on the consumer pieces?

Sure. So on the consumer side, the video part of the consumer business is the largest component with more than half of the business being on the video side.

Ian Ing, MKM Partners.

So for Broadcast automotive, what's your penetration rate at this point and what do you think it can get to?

Yes, Ian, if you look at the markets for automotive infotainment, we believe that the total market size is between $300 million and $500 million with ST and actually NXP having the largest share there. We have probably still -- we still have on the order of high single-digit market share in this area. We just introduced our brand-new next-generation platform last quarter with multi antenna, multi standard reception capability, built-in audio processing and some very, very interesting specs and features across that address a wide range of the infotainment market.

So we think as time moves on we're going to continue to be able to gain share and to continue to grow that, both on the back of this new platform as well as the Tier 1 traction that we've had so far and the desire of these companies to bring in a new innovative supplier that can bring some new technology as well as competition into the market.

Thanks, and for my follow up you talked about TVs in Europe, but could you talk a bit more about European chip sales and currency implications, how they can play out? I think you've got some exposure with isolation in the industrial markets, you've got Bluegiga and Energy Micro serving some regional customers also? Thanks.

Right, from a non-TV standpoint we have not seen any indication of softness in our customer activity both from a design win or an ordering pattern. So while we have some exposure to Europe, it's on the order of a quarter of the overall Company's revenue coming out of Europe. But we see good interest from an automotive standpoint and an industrial standpoint coming out of our European customers. In fact, that's one of our strongest regions in Q1 and Q2 in terms of growth outside of course the consumer type of areas. John, did you have anything to add to that?

No not particularly. Don't -- the only thing I would add is clearly we're aware of some of the weakness that we see among many of our semiconductor peers and we'll continue to monitor our build plans and watch the market overall as we march forward in the year. But apart from that, I don't have anything to add to what Tyson said.

Ryan Goodman.

Thanks for taking the question and congratulations on the quarter. Question on the Access business, that business keep performing better than guided I think it's been about four quarters in a row now. So first question would be what's helping keep this business going -- tracking so well?

And then second you're guiding at flat for Q2 but you're sticking with this down 5% to 10% for the year. Just doing the math that seems to imply a pretty steep drop in the second half, so just curious why you're taking such a conservative stance there?

Yes, Ryan, this is Tyson. We've seen strength in our voice over IP business, our SLIC business, subscriber line interface where you're delivering phone service to the home and this is the set of chips that provide that line termination. That business has been very strong for us the last three quarters. And our anticipation is that our share has grown somewhat in that space and so that we see help in that business.

We also see the modem business has held in steady but we also anticipate a steady decline in the modem business just as we've seen over time. And so that's really the source of our conservatism in terms of the overall business declining. Overall from a long-term standpoint, we believe that that modem business will continue to step down each year and if you look on a year-on-year basis that -- we still continue to believe that that's the case.

Atif Malik, Citigroup.

Hi thanks and congratulations on the (inaudible) numbers and also picking out the IoT segment for us. John, if I look at your gross margins, they're in the middle of 59% to 61% target model at 60%. So if I think about the IoT bucket, what are the gross margins for the bucket as IoT mix improves for you, how should we think about the gross margins maybe improving from the long-term project model?

Yes, Atif, the IoT bucket is roughly in line with the corporate average in terms of margins, so we would expect the growth there to really be consistent with our model. Having said that, we're going to be competitive in this space and we'll be winning share as well. But overall it should be in line.

The two key variables for us in terms of margin are the infrastructure products, which are above the average, and Broadcast automotive. So going forward you'll hear us talk about those elements really more moving the needle on the margin performance.

With the consumer margins being somewhat below the corporate average being the counterbalance to that.

We have no further questions. I would now like to hand to call back over to Jalene Hoover.

Thank you, Ryan, and thank you, everyone, for joining us this morning. This concludes today's call.

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