Silicon Laboratories Inc (SLAB) 2016 Q3 法說會逐字稿

Good morning, my name is Lisa and I will be your conference operator today. At this time I would like to welcome everyone to the Silicon Labs third-quarter 2016 earnings conference call.

(Operator Instructions)

I would now like to turn the call over to Jalene Hoover, please go ahead.

Thank you Lisa, good morning everyone, thank you for taking time to dial in. Tyson Tuttle, President and Chief Executive Officer; and John Hollister, Senior Vice President and Chief Financial Officer are on today's call. We will discuss our financial performance and review our business activities for the third quarter.

After our prepared comments we will take questions. Our earnings press release and the accompanying financial tables are available on the relation sections of our website at www.silabs.com. This call is also being webcast and a replay will be available for four 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 perception 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 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, which identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements.

In addition, it is not our intent that the non-GAAP financial measures discussed today replace the presentation of Silicon Labs GAAP financial results. We are providing this information to 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 Financial Officer, John Hollister.

Thank you, Jalene. We are pleased to report outstanding results for the third quarter with revenue achieving an all-time record at $178 million, representing year on year growth of 14%, as well as excellent earnings with GAAP earnings per share of $0.47 and non-GAAP earnings per share of $0.77. Each of these metrics exceeded guidance for the quarter due to upside in revenue, strong gross margin performance on product mix, and favorable expense control. IoT revenue achieved a new record of $82 million or 46% of Q3 revenue. Wireless products performed particularly well with a continuing ramp in mesh networking, ICs and modules, as well as proprietary wireless products.

Infrastructure products significantly exceeded our expectations with revenue of $38 million or 21% of third quarter revenue up 23% year on year, which is well above our strategic growth target. Our timing products delivered a second consecutive record revenue quarter with strong demand for our high-end clocks and oscillators. We also achieved a seventh consecutive record in our isolation products.

As we expected Broadcast delivered growth in the quarter with revenue coming in at $41 million, or 23% of total Q3 revenue. Third quarter performance was primarily driven by seasonal strength in consumer, including a recovery in our TV tuner market share over the past year. Broadcast automotive posted another solid quarter with revenue near record levels.

As expected, Access declined in the third quarter to $18 million or 10% of total revenue.

We saw growth in all geographies during Q3 and the strongest performing end market was industrial, up nearly 30% year on year, reflecting solid performance in our IoT and isolation products.

Worldwide distribution revenue was 68% of total revenue and experienced another growth quarter.

Third quarter non-GAAP gross margin ended significantly above expectations at 61%, exceeding the high end of our target model range and driven by favorable product mix with strength in our Infrastructure products a key contributor.

Non-GAAP operating expenses for the quarter were slightly favorable at $71 million. R&D was $40 million or 22% of revenue with lower salary and tape-out expenses. SG&A expenses were $31 million or 18% of revenue and consistent with expectations. We are pleased to report that non-GAAP operating expenses for Q3 were in line with our target operating model.

With revenue and gross margins exceeding expectations, combined with favorable OpEx, non-GAAP operating margin also achieved target operating model performance at 21.1%.

The third quarter non-GAAP effective tax rate increased to 12.9% due to the geographical mix of income.

Non-GAAP earnings ended at $0.77 per share, which is up 51% from third quarter 2015.

On a GAAP basis gross margins were 60.8%, R&D expenses were $48 million and SG&A expenses were $38 million. GAAP operating income was $22 million, or 12% of total revenue. Stock compensation costs for the quarter was $9 million or 5% of total revenue and amortization of intangible assets was $6 million, both consistent with expectations.

GAAP earnings per share ended at $0.47 which is an increase of 104% from third quarter 2015.

Turning now to the balance sheet, we ended the quarter with $286 million in cash and investments. Cash flow for the quarter was strong with year-to-date cash flow from operations at $107 million, which is a 23% increase, or $20 million over the same period in 2015. Third quarter year-to-date we completed over $40 million in share repurchases with an additional $59 million remaining authorized in the current program. The diluted share count for the quarter increased only slightly to 42.3 million shares, which is near a record low.

Accounts receivable ended at $85 million or 43 days sales outstanding.

Net inventory ended at $55 million reflecting turns of 5.1 times.

The Company's total debt balance is unchanged for the quarter at $73 million and we continue to have ample borrowing capacity to fund incremental investments into the business with adjusted EBITDA leverage of less than 1X.

Overall the Company's balance sheet remains healthy.

Yesterday, Silicon Labs filed an 8-K regarding change in control agreements that have been entered into with senior management. Following the appointment of a new chairman of our compensation committee in April of this year, the committee commenced an extended review of our existing change in control provisions and also conducted a peer analysis.

Resulting change in control agreements were proposed by our compensation committee to minimize unnecessary distractions to key members of management in the context of any potential future M&A event and to bring our change in control provisions more in line standard terms in the industry. These actions were not undertaken in response to a specific inbound offer.

I will now cover guidance for the fourth quarter. We expect fourth quarter revenue to be in the range of $176 million to $181 million with growth in IoT, Broadcast and Access flat, and a decline in Infrastructure.

We expect Q4 gross margins to be in line with the midpoint of our operating model at 59%.

We expect non-GAAP operating expenses to increase to between $73 million and $74 million.

We anticipate our fourth quarter non-GAAP effective tax rate to be approximately 12.5%.

We expect our non-GAAP EPS will be in the range of $0.62 to $0.68 and our GAAP EPS to be in the range of $0.30 to $0.36.

I one now turn the call over to Tyson.

Thank you, John. We are delighted to report outstanding third quarter financial performance including 5% sequential and 14% year on year growth in product revenue, which reached an all-time high. We are executing on our growth strategy targeting IoT and Infrastructure markets and are seeing our efforts translate into strong financial results.

Silicon Labs is well positioned for success in the IoT, providing technology that is connecting the world. We have built a comprehensive portfolio of silicon, software and solutions to address IoT end node applications. Our broad portfolio of multiprotocol wireless SoCs, ultra-low power MCUs, sensors, software stacks, and development tools continues to grow.

As the IoT evolves, a new class of embedded applications is emerging, presenting feature rich and task intensive use cases. This growing complexity is driving the need for real-time operating systems, or RTOS, simplifying software development for IoT applications by coordinating and prioritizing multi-protocol connectivity, SoC peripherals and other system-level activities. You can think of an RTOS as an operating system for embedded IoT nodes, just as Microsoft Windows is the standard OS for most PCs.

To address this market need, earlier this month we announced the acquisition of Micrium, the leading supplier of real-time operating systems software for embedded computing. Supporting more than 50 processor architectures and providing a commercial grade RTOS solution across key embedded markets including automotive, medical, avionics, industrial, and consumer electronics devices. For example, NASA's Mars Rover runs on Micrium's RTOS, making this not only the leading RTOS on the Earth, but also on the red planet.

This strategic acquisition serves as a unique differentiator, further solidifying Silicon Labs' position as the leading IoT solutions provider and accelerating the evolution of the IoT ecosystem. Silicon Labs and Micrium share a common goal, to provide innovative hardware and software solutions to the embedded systems market that enable customers to simplify their designs and develop applications quickly and easily.

As software is becoming increasingly important to successful IoT applications, we have made key investments to offer our customers best in class tools and wireless protocol stacks. In Q3, we released a major update to our award-winning Simplicity Studio software development tools to give developers more capabilities and easier access to Silicon Labs full range of IoT products. Simplicity Studio provides one click access to everything developers need to complete their projects, including a powerful suite of tools for energy profiling, configuration and wireless network analysis.

To highlight our growing strength in wireless protocols, we have shipped more than 100 million ZigBee mesh networking devices worldwide to date, achieving a major milestone during the quarter. As a leading provider of ZigBee and a founding member of the Thread group, we offer more than a decade of leadership and development and certification of standards-based ZigBee mesh networking solutions. Our customers rely on our deep understanding of mesh technology and RF certification. They also appreciate that we offer the tools and wireless protocol stacks they need to simplify development as well as software updates a migration paths that safeguard their IoT products from being stranded on older technologies and standards.

We expanded our portfolio of mesh networking products in Q3 with the launch of a new family of wireless modules based on our multi-protocol Mighty Gecko SoC and supported by our ZigBee and Thread software and development tools. The module's combination of onboard stacks, antennae options and RF regulatory certifications helps developers reduce costs, complexity and time-to-market for a broad range of applications including home and building automation, connected lighting, smart metering, and security.

Moving onto Infrastructure, our timing and isolation products both achieved record revenue in Q3. Strength in carrier capital expenditures fueled demand for our timing products during the quarter. Over the last several years carriers have directed CapEx to build out 4G and LTE wireless infrastructure. Recently they are shifting more CapEx from wireless to fixed wireline networks, which plays to our strong market position in optical and broadband. We are also seeing carriers starting to adopt some of our newer high-speed products, including 100 gig networks, earlier than expected.

Our isolation products delivered a seventh consecutive record revenue quarter. We are taking share from our digital isolation competitors and also accelerating the obsolescence of optocouplers by offering higher performance, longer lifetimes and significantly greater reliability, with our digital isolation technology over traditional optical based solutions. Our market opportunity continues to expand as our growing isolation portfolio gains traction in a wide range of applications, including power supplies, electric and hybrid electric vehicles, solar inverters, and motor controllers.

We launched three new isolation product families during the quarter to fuel our investment and continue to drive growth.

* Our latest isolated driver family offers a unique capability to transfer power across an integrated CMOS isolation barrier and provides a much-needed replacement for antiquated electromechanical relays and optocoupler-based solid-state relays in switching applications.

* Our new ISOdriver family provides the ultimate gate driver solution for industrial and green energy designs requiring state-of-the-art signal isolation technology with superior timing, lower emissions and higher reliability.

* We also introduced the industry's first high-speed multi-channel digital isolators designed to meet the demands of programmable logic controller applications.

Before offering my closing remarks I'd like to welcome Lori Knowlton to Silicon Labs management team as Senior Vice President and Chief People Officer. Prior to joining Silicon Labs, Ms. Knowlton served as CPO for HomeAway where she led the company's human resource initiatives from early-stage growth, through an IPO, a number of acquisitions and ultimately to its sale to Expedia. She brings a proven ability to translate business objectives into people strategies as well as deep expertise in attracting, developing and engaging high-caliber talent.

In August we celebrated Silicon Labs' 20th anniversary. One of Silicon Labs founding principles was a desire to collaborate with outstanding people. Since our inception we knew that much of our success would depend not only on the projects we created, but also on how well we work together in building cohesive high-performing teams. The kind of atmosphere we enjoyed then and what thrives within our Company today is built on the values we outlined at the start. Hire the best talent, choose the right products, create a healthy work environment, share our success with employees, and give back to our local communities while achieving profitability every year.

These values now focused on achieving leadership in silicon, software and solutions targeting the large and growing IoT and Infrastructure markets, have resulted in Silicon Labs being one of the highest quality and best positioned semiconductor companies in the industry. I am pleased with our record revenue performance and even more excited about what lies ahead.

Thank you for your time and attention. Before we take your questions at like to turn the call back to Jalene.

Thank you, Tyson. Before we open the call for the question and answer session I would like to announce conferences that we will participate in during the fourth quarter. Including the Credit Suisse 20th annual Technology Conference in Scottsdale on December 1 and Barclays Global Technology, Media and Telecommunications Conference in San Francisco on December 7.

We would now like to open the call up for your questions. To accommodate as many people as possible before the market opens, we ask that you please limit your questions to one with one follow-up.

(Operator Instructions)

Our first question comes from the line of Anil Doradla from William Blair.

Hey guys, congrats on the fantastic results.

A couple of questions. When I look at the big picture and look at your results from a gross margins point of view and operating margins point of view, we have not seen some of these metrics after maybe 2012, 2013. Clearly, you guys are executing well. It sounds like you're taking market share. Tyson, if I were to step back and simplistically look at it, how would you explain basically these wonderful results?

Since 2012, we have been focusing our efforts, both from an M&A perspective and from an internal development perspective, on the IoT and the Infrastructure markets. As you know in the semiconductor industry, it takes some time to turn the ship and to get the products out and to get them designed and to customers. We are pleased that we are starting to see good results, particularly on the IoT side where we had 46% of our revenue now coming from IoT.

Strong design win traction, solid year-on-year growth, solid margins, especially on the Infrastructure side in timing. We had a record quarter in timing, which comes above the corporate average as well. So that helped to drive good performance on the margin and then flows down to the OI side.

I think for the last four years, we have been investing and are now seeing the fruits of those investments and the design wins start to take hold and for the revenue to start to ramp. I would also add that the proportion of our revenue coming out of these strategic growth vectors is now over two-thirds of the total revenue. The strategic growth vectors are -- that is now becoming the predominant piece of our revenue, so that also helps to drive the growth.

Very good.

And as a follow-up, John, looking at the balance sheet we saw an $8 million increase in differed revenue at distributors. Can you help us understand what happened there?

Certainly, we had a high rate of shipment into the distribution channel through the quarter. We had somewhat light day sales in the inventory and the channel, as we rounded out Q2. So really see that primarily as reloading the channel and looking at the guidance we were able to offer for Q4, feel like that is a reasonable amount of inventory to be carrying out there.

Great, and congrats once again, guys. Great results.

Our next question comes from the line of Blayne Curtis from Barclays.

Hey, guys, thanks for taking my question and congrats on the great results.

Just curious, John, when you look at the OpEx, you obviously did an acquisition, although I think it's small. Can you just talk about what's driving the increase? Is that the right base as you look into March, or will some costs come out from the deal?

We saw favorability in Q3 really with a somewhat lighter tape out quarter, as well as the seasonal roll-off of some of the fringe-related costs for employees. Looking at Q4, we are layering in the acquisition-related headcount, which is about 20 folks; that is roughly $1 million. Then we also have an increase in the number of tape outs that we are projecting for Q4.

As we head into 2017, we are going through the annual operating plan construction right now with the management team and then with the Board. We will have more to talk about on the January call. Overall, we are pleased with the OpEx control in 2016. We had initially guided 5% year-on-year growth, and we're going to come in at this midpoint roughly just below that. So we're pleased with the progress in terms of operating margins as well.

Great. Video has been such an up-and-down business. Looks like it finally came back for you in September. Can you talk about as you are looking into December, you've got it at flat. Is that a mix of video still being up and the rest down? How do you get to that flat? Can you just talk about the health of that video and any dynamics you saw in the quarter?

The year-on-year performance in video was quite strong. We recovered our market share at our lead customer. That was taken down in the second half of last year due to the Cresta Technology lawsuit that has largely played out. We have been able to maintain our market share there, and we are pleased with the performance in the third quarter.

In the fourth quarter, we think that Broadcast will be approximately flat. Q3 is typically a seasonally a high quarter, but the booking patterns suggest that we will have a reasonably flat performance in video. Then, of course, you would expect that to tail off as we head into the first quarter, just due to consumer-type trends. So overall, we have got about mid-60s market share now on the TV tuner front end and have been able to recover that and feel quite good about our position in the video market.

Our next question comes from the line of Matt Ramsay from Canaccord Genuity.

Good morning, guys. Tyson, I just want to ask quickly. I think the long-term growth rate that you guys have cited for your IoT business is in the 20s% and starts with a two. I hope to understand a little bit more about the organic growth rate in Q4. I know you guys had several acquisitions that got folded into that business last year. It looks like your organic clean growth rate is at that 20s% level. So if you could tease that out a little bit for us to just help us model that organic business on a go-forward basis, that would be really helpful. Thanks.

I think that using a long-term organic growth rate in the IoT business of 20% that's about what we will hit this year is the right number to use.

I think, Tyson, on your prepared remarks you talked about 30% growth from sort of global Infrastructure spending into your business or global industrial spending into your business. Maybe you could talk a little bit about that and, in particular, give an update on how things are progressing in China and in the 8-bit microcontroller market where there has been some movement in market share, I believe. Thanks.

Industrial is our fastest-growing market segment. So that is driven by both our IoT products and our isolation products. Isolation going into things like motor controls and power supplies, hybrid electric vehicles, and IoT going into things like metering and security systems, commercial building automation, a lot of industrial-type applications there. Those have been the fastest-growing components.

On the IoT side, I would say the growth, there is a lot of different wireless applications. So the growth on the wireless side has been stronger than in the microcontroller side. We've seen nice growth year on year on the 32-bit MCU side, and fairly consistent performance out of our 8-bit microcontroller.

We've had single digit growth year on year in 8-bit so we have been introducing new products there and do continue to see that as an attractive market for us. The 32-bit year on year did have a somewhat higher growth than we saw growth in both 8-bit and 32-bit year on year.

Thank you, very much.

Our next question comes from the line of Tore Svanberg from Stifel Nicolaus.

Congratulations on the results.

First question, Tyson, we are now starting to talk about RTOS into the revenue mix. I guess first of all, is there a way to monetize RTOS? How does it kind of change the dynamics for you as you continue to work with other operating systems?

Micrium was the leading RTOS in the industry. If you look at the embedded market surveys, they had somewhere North of 30% to 40% market share. That was supported across a wide variety of processor architectures, like 50 different processor architectures. So a lot of that licensing revenue comes from a broad range of end products.

So they license end products to use the RTOS and we will continue to support those various processor architectures and continue to promote this broadly throughout the market. So that is one path to monetizing the revenue. That's in mid-single-digit millions of revenue that comes in, and that is a software licensing model.

The second way really to monetize the RTOS technology is to deeply embed that into our IoT devices. So to optimize the RTOS programming methodology and to integrate our stacks and to integrate low-power functionalities into the RTOS that will further differentiate our products.

So as we take our products out, as the functionality continues to increase with multi-protocol activity and more rich applications, having that RTOS capability will further differentiate our products and help to drive differentiation in the market. So I believe long term that is the more significant component of this. It still opens up the opportunity to move into more of a software licensing model for services and maintenance and those sorts of things as well.

That's very helpful.

As the IoT and Infrastructure buckets are more than two-thirds your revenue, how has that kind of changed the way you manage the business? I'm thinking more sort of from a visibility perspective. Does it give you a little bit better backlog going into any given quarter? Does that in turn give you a better handle on the way you manage your expenses?

Tore, this is John.

It is pretty consistent. We generally see six to eight weeks of lead time on orders as we enter a quarter. The IoT and Infrastructure portfolios follow a similar pattern, so those are important tracking points for us. We also measure our opportunity and design win activity as well for these products, but it's reasonably consistent with the rest of the portfolio.

Sounds good, great quarter.

Our next question comes from the line of Harsh Kumar from Stephens.

Hey, guys, let me also add my congratulations.

I had a couple questions, Tyson, first one for you. What is the biggest difference between RTOS from Micrium versus what is being used today? Could you also tell us maybe, I didn't catch if you said in the press release how much was paid? Is it accretive or dilutive in the near or midterm?

A lot of embedded devices don't use an RTOS at all. The applications are written directly on the processor, and we call it kind of a bare metal design. As the number of functions grows, as the precise timing of those applications or protocol stacks becomes more and more important, and also just from a programming complexity standpoint, keeping all of that coordinated.

The RTOS is really a layer that runs on top of the bare metal, and the applications run on top of that. So the RTOS helps to coordinate the timing and simplify the programming in embedded devices. We are talking about we are not running Android or Microsoft Windows or any of the higher-level operating systems. This has, for embedded devices, a very similar function to what you would see in a phone or on a PC.

Harsh, this is John.

On the transaction, it was roughly a $14 million purchase price with the revenue, as Tyson mentioned. Expenses, as I mentioned, are roughly equivalent so that is an offset impact. So it would be slightly dilutive on a GAAP basis and neutral on a non-GAAP basis.

Understood, and then another one for Tyson.

Tyson, we are seeing IoT sort of go longer range here recently. I'm specifically mentioning things like LoRa that Semtech's doing. Also a bunch of cellular wireless type applications that we are starting to see here in the marketplace. My understanding is you guys don't have that yet. Do you feel that there is a need for you to go attach that down the line at this point in time?

There are a number of competing technologies out there. You've got the cellular carriers taking LTE technology down into lower power, lower data rates, to support IoT-type devices. You have the LoRa technology from Semtech getting deployed by a number of carriers, and then you have another company, SIGFOX, which is deploying networks. We actually have engaged with SIGFOX for a number of years in our RF, and microcontroller solutions are used in a lot of the SIGFOX deployments.

If I look just really out, the market has really not taken off in terms of the shipments and deployments of these longer-range IoT networks. If I look at the spectrum that the cellular carriers have and the predominance of the LTE technology, it is my belief that LTE is going to be the winner if the cellular carriers are able to create a billing structure that facilitates the lower bandwidth and lower-cost type applications.

That being said, we are continuing to monitor all of these technologies but are focused today on the mesh networking technology, proprietary technologies, and Bluetooth technologies, where the predominance of volume exist today.

Last one for me, and I promise to get off after this. Infrastructure down, any specific area that is hurting more than others or just offset from the large calendar Q3?

We just had a strong quarter in both timing and isolation. Given the lumpiness that we see in ordering patterns, particularly from the carriers on the timing side, we think that will be down slightly here in the fourth quarter.

Congrats again, guys, thanks.

Our next question comes from the line of Cody Acree from Drexel Hamilton.

Thanks for letting me ask a question and congrats on the results. Could you maybe talk about -- I'll go back, Tyson, to your remark about the 100-gig uptick you said was coming in a little earlier. Can you give any more color there?

In the timing, we have traditionally been strong in optical networking, long-distance and metro area networks. The 100 gig is the next evolution of that. We have been introducing products in that area and working with customers here over the last couple of years. We have actually seen the adoption of that be a little bit faster than we had thought it was going to be.

So the newer product revenue coming out of timing targeting these 100-gig devices is starting to ramp. That did contribute to the success that we saw in Q3.

And how did margins compare in that business?

The timing margins are above the corporate average. That was partly responsible for the over performance on the gross margin side, particularly with the product mix being slightly skewed towards timing. So that is the strongest margin component of our business, and the new ramps would tend to suggest that's going to remain so.

And then lastly, just on modules and SoCs, can you talk about how big a piece of business that is. And as that continues to grow for IoT, how does that maybe change some of your application focus in the future?

The wireless business is now larger than the microcontroller business in IoT. That's spread across SoC designs, which are primarily the higher volume-type applications, then modules, which are more friendly to the channel, easier to design and includes the antenna, and come at a higher ASP. The SoC sales are still larger than modules. Through the acquisition of Bluegiga and then Telegesis, we do have significant volumes of modules sales of both 15.4 ZigBee and Bluetooth.

We continue to believe that is a good strategy to keep us connected with our customers, to make it easier to use our products, and to drive channel sales and to streamline our support activities as well. So the wireless business is going to continue to be a mix of modules, where we do have a higher gross margin dollar content and a higher ASP, but they come at a slightly lower margin.

Then for the higher-volume accounts, when they want a price reduction, we can move people over to an SoC design, which takes a little bit more support where you have to design the RF and go through the certification and the antennas and that sort of thing, but where we can achieve higher margins on the SoC side.

Thank you.

Our next question comes from the line of Craig Ellis from B. Riley.

Thanks for taking the question and congratulations on the very strong operating margins and the results. The first question is just following up on some of the comments on Micrium. It looks like it has got all the hallmarks of a classic Silicon Labs acquisition that is ultimately quite strategic and revenue generative, either directly or indirectly for the firm.

With that as a backdrop, Tyson, can you give us an overview of how the Company is now, with that RTOS acquisition, looking at some of its technology or product needs? And what should we expect with regards to M&A going forward?

We believe that we have, through the acquisitions of Ember in 2012, which brought in our mesh networking technology and the decade-long experience in ZigBee, and then moving into Thread. And then we acquired Energy Micro, which brought in class leaving low-power 32-bit ARM-based microcontroller technology. Then with Bluegiga coming in and bringing in the Bluetooth stack and the Bluetooth modules, we believe we have a complete -- and then now with Micrium, we have a complete set of technologies to take these connected device applications wireless across a number of different standards, multi-protocol designs.

The underlying operating system, which is going to help us scale as these applications become more full-featured, as well as the wireless functionality continues to evolve. So we think that we've got a lot of the technologies in-house certainly to compete within the markets that we are in. We continue to look for areas with which to both make investments internally to expand into additional wireless standards or to integrate additional functionality.

That being said, we think in IoT that we have a class leading, best-in-class portfolio of parts and all the pieces that we need to compete and carry this product going forward.

Thank you. The next question is more for John on mix.

John, as we look at the IoT segment, clearly it is performing quite well. There are two big areas of end-market exposure, industrial and consumer. Can you characterize the degree to which revenue mix is shifting in the second half and in the fourth quarter specifically, more from industrial to consumer? Are there discernible seasonal patterns that are emerging with those two end markets as we go through the year?

Craig, it's a good question. Not so much. There is some consumer elements in the third quarter, which adds to that.

Really, the more notable item is the modules and IC mix shifts. We did see a bit stronger IC mix in third quarter than we were expecting. That was also a factor that was contributing to the upside performance in gross margin. Conversely, we are seeing an increase in modules sales coming up in Q4 that is having the inverse effect. So we will continue to see how this develops over time, but the industrial continues to perform quite well.

Thank you. Then lastly, in a clarification, I believe in the prepared remarks it was stated that the change in control procedures weren't triggered by any specific inbound inquiry. Can you clarify if there have been any inbound inquiries over the period where you have had a new compensation officer on your Board?

We have not had any active inbound interest or offers come into the Company. This was not driven by any inbound interest, and was driven by the fact that are new comp committee chair was coming from a company that had just gone through a change in control situation and was reviewing all of our practices and documents and highlighted this as an area that we should get more in line with the market.

Make sense, thanks, guys.

Our next question comes from the line of Suji De Silva from Roth Capital Partners.

Hi,Tyson. Hi, John. Congratulations on the 20th anniversary there.

The IoT market industrial seemed strong. What end applications are driving that smart metering, et cetera? Are any of the end markets in IoT developing a little slower than you expect relatively?

The IoT markets continue to be quite broad. If you look at the ones that we highlighted in the call, probably leading is home and building automation followed by, I would say, smart metering, you have got the smart metering rollout proceeding in the UK. That's an example of one that we have been working on for four or five years and is finally taking hold.

You can say that a lot of these applications, some of them surprise you with a quick ramp and other ones take longer than you expect. Overall, just year on year, you continue to see an expansion of applications and an expansion of customers reflecting, I think, a long-term growth trend in IoT across a broad range of applications. Some of the new ones that we see coming up are connected lighting is going to be a very important market for us. As you see both consumer, industrial, commercial lighting and being driven by energy savings and then just a broad range of industrial automation-type applications that continue to layer on.

I would probably characterize -- there has been a lot of hype and a lot of discussion around IoT, and a lot of high expectations. I view this as a decades-long trend of connecting everything up in the world, and this is going to continue to be a very nice set of markets for us, a very diversified set of markets, and high-quality growth for a long time to come.

Okay, and my other question is on Broadcast auto. Can you talk about your progress there up to the share level you're targeting? Can you update us there? Thanks.

Over the last couple of years, we have seen a significant increase in the Broadcast automotive business driven by some Tier 1 wins in both Europe and the UK. We also have been ramping some of the Asia, both in China and some of the aftermarket stuff in Japan. These types of wins come on kind of an annual basis. They are things that come with a high degree of visibility. You work on them for a long time and then they ramp.

We have seen a nice growth here over the last couple of years. It's been a fairly steady business here over the last year or so. We continue to see that as an important growth vector for us, albeit at a measured pace, given the time cycles that are required to bring on these new programs.

Okay, thanks, guys.

(Operator Instructions)

Our next question comes from the line of Ian Ing from MKM Partners.

Thanks, good quarter.

So the IoT ecosystem looks like it's evolving pretty quickly. You are nimble in terms of getting the right capabilities, whether it is RTOS or modules. Do you think there is stabilization at some point and perhaps you can deploy more of your $4.40 per share in cash more towards buybacks instead of keeping dry powder on acquisitions?

Ian, we will continue to see how the market evolves and what capabilities we may want to add. As Tyson alluded earlier, we do feel good about the portfolio that we have assembled, both organically and through some of the key acquisitions that we have executed.

I will note that we are also pleased with the performance that we have had on the buyback on the stock. We did around $70 million in both 2014 and 2015, and have executed another $40 million thus far in 2016. So we think those are the twin pillars of our capital deployment activity and are making progress on both vectors.

Ian, one more comment on that is the M&A we have done here over the last four years has been focused on IoT. We also have a high-quality Infrastructure business, both in power and the isolation products and in timing. So I wouldn't necessarily restrict thinking on the M&A side just around IoT. We have a very high-quality business on the Infrastructure side, and there are continuing to be a lot of assets out there that could be attractive.

That's helpful, Tyson. Then a follow-up here, I know it's a bit early but any implications on the AT&T for Time Warner deal? I think in the past you've talked perhaps about infrastructure spending implications as some acquisitions happen at these telco and content levels.

Yes, Ian, we don't have any comments on that at the moment. We will continue to see how that merger activity plays out.

Thanks. One last follow-up. You had really strong performance in the quarter, despite some pretty sharp declines in Access segment. Looks like that's going to be down about 20%-plus for the year. I mean is this sort of the new trend, or does it stabilize at some point? It looks like that headwind is starting to become more in the rear view for you here?

If you look at the guidance that we've been giving on Access over a multi-year basis, we've talked about that being down 10% year on year. We've had quite strong performance in 2015 out of Access. It was down, I think, pretty close to flat year on year. That was like 2014 to 2015, so this year it has come down.

We think that steady kind of 10%, if you're going to model things, that 10% down year on year is a reasonable way to model Access. These are long-lived markets. We do see the number of ports on the voice side of modems declining over time. These are mature products but ones that generate high-quality revenue, and we continue to maintain share there.

Okay, thank you, very much.

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

Thank you, Lisa.

And thanks to everyone for joining us this morning. This concludes today's call.