Silicon Laboratories Inc (SLAB) 2021 Q1 法說會逐字稿

Good morning. My name is Matt, and I will be your conference operator for today. At this time, I would like to welcome everyone to Silicon Labs' First Quarter Fiscal 2021 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to, Austin Dean, Silicon Labs' Investor Relations Manager. Please go ahead.

Thank you, Matt, and good morning, everyone. Tyson Tuttle, Chief Executive Officer; John Hollister, Chief Financial Officer; and Giovani Pacelli, Senior Director of Finance are on today's call. We will discuss our financial performance for the first quarter and review our bid activities. After our prepared comments, we will take questions.

Our earnings press release and the accompanying financial tables are available in the Investor Relations section of our website at www.silabs.com. This call is also being webcast, and a replay will be available for 4 weeks.

Our comments today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements.

Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company's earnings press release and in the Investor Relations section of Silicon Labs' website.

I will now turn the call over to Silicon Labs' Chief Financial Officer, John Hollister.

Thanks, Austin, and welcome, everyone. Last week, we signed a definitive asset purchase agreement with Skyworks Solutions for the divestiture of our Infrastructure and Automotive business, launching our transformation into a pure-play leader of intelligent wireless connectivity for the IoT market. We also announced organizational changes that will enhance our ability to capitalize on this exciting new opportunity in IoT.

Matt Johnson, formerly Senior Vice President and General Manager of IoT, has been promoted to President of Silicon Labs, where he will be leading our day-to-day business operations as well as our product development activities.

Daniel Cooley, formerly our Chief Strategy Officer, will now serve as our Chief Technology Officer, where he will continue to develop our technology roadmap and align our products and solutions to the market opportunity before us.

Tyson Tuttle will continue as Chief Executive Officer to further evangelize our products and platform to the growing IoT customer base.

Please note that the divestiture will include a small ASIC product line currently classified in the IoT reporting category, which accounted for less than $3 million of revenue last year.

Our comments today will focus on the consolidated operations of Silicon Labs. We expect to be in position to report on our continuing operations on an IoT-only basis in the July call.

We are very pleased to announce this morning record revenue for the first quarter at $256 million, up 5% sequentially and 19% year-on-year, significantly exceeding the high-end of our initial guidance for the quarter.

IoT revenue for the quarter was $158 million, above our expectations, up 7% from Q4 and 34% year-on-year. IoT Wireless led the way with 44% year-on-year growth in Q1 with strong double-digit growth across all our major wireless protocols.

Infrastructure and Automotive revenue in Q1 ended at $97 million, up 2% sequentially and about flat year-on-year. Timing and Isolation both increased from Q4, offset by slight declines in other I&A product lines.

Turning to end markets. Revenue from Industrial, Consumer and Communications markets were all up in Q1. Automotive was down slightly, coming off a strong Q4 recovery. Distribution sales were 79% of total revenue for the quarter, and we ended Q1 with DSI at around 41 days, down from 47 days at the end of Q4 with strong POS to end customers, driving down the distributor inventory level.

Geographically, we saw particular strength in Q1 in APAC and Europe, with sales in the Americas down in the quarter.

Total bookings were very strong again this quarter and about 5% higher than Q4 bookings, which were already at an elevated level.

Non-GAAP gross margin for the quarter ended better-than-expected at 59.1% due to strength in product mix as well as operational efficiencies with the upside in revenue.

Non-GAAP operating expenses in the quarter were $103 million, up about 6% from Q4, primarily due to increased payroll taxes, variable compensation and medical claims expenses. R&D expenses were $61 million or 24% of revenue in the quarter, and SG&A expenses were $42 million or 17% of revenue.

Non-GAAP operating profit for the first quarter was $48 million or 18.7% of revenue. Our non-GAAP effective tax rate for the quarter was 10.8%. Non-GAAP earnings ended at $0.91 per share.

On a GAAP basis, gross margin was 58.9%. GAAP operating expenses were $128 million. Stock compensation expense was $14 million, and amortization of intangible assets was $12 million, both in line with expectations.

Turning now to the balance sheet. We ended the quarter with cash and investments totaling $578 million. Our operating cash flow in the first quarter was $15 million, with significant cash outlays related to seasonally high payroll taxes and increased levels of working capital.

Accounts receivable was up on strong shipments in Q1, ending at $104 million. Our DSO increased slightly to 37 days. We have no known bad debt exposures related to our accounts receivable. The inventory balance grew in the quarter to $79 million on anticipated growth in the business with inventory turns declining to 5.3x, which is still higher than our goal. Though the overall supply chain in the semiconductor market remains tight, our fabless business model, efficient manufacturing techniques and outstanding relationships with our suppliers, have enabled us to deliver upside results for Q1.

During the first quarter, we completed the redemption of our 2022 convertible notes and have no balance outstanding on those notes. The 2025 convertible notes have a $535 million balance.

Our balance sheet remains very strong and well capitalized.

I will now cover guidance for the second quarter. We expect revenue in the second quarter to be in the range of $262 million to $272 million, with IoT roughly flat sequentially, limited by supply and I&A up sequentially.

As we indicated last week, we expect IoT revenue to grow 25% to 30% for the full year or between $640 million and $660 million. The demand for our products is very strong, and our revenue outlook for the second quarter is supply constrained. We are working continuously and aggressively with our suppliers to open up additional capacity. We expect the tight supply conditions to persist for several quarters as factories need time to qualify new production capacity.

We expect non-GAAP gross margin to be in the range of 57% to 58%. Based on the supply chain situation, we have experienced cost increases and expedite charges from a number of our suppliers, which is impacting our gross margin. We are implementing additional price increases, but expect we will be slightly below model on gross margin for the balance of this year.

We expect non-GAAP operating expenses to be approximately $104 million. We expect our non-GAAP effective tax rate will be 11.5% for the second quarter.

Based on current tax law and accounting rules, we expect our 2022 non-GAAP effective tax rate to be in the low to mid-20s on a combined company basis. For Q2, we expect non-GAAP earnings per share to be in the range of $0.88 to $0.98.

On a GAAP basis, we expect gross margin to be between 57% and 58%; operating expenses to be $130 million; and GAAP earnings per share to be in the range of $0.28 to $0.38.

I will now turn the call over to Tyson.

Thank you, John. We are pleased to report record first quarter revenue. The pandemic has led to an accelerated digital transformation, creating market opportunities we've been able to seize through organic growth, despite unprecedented global supply chain constraints. The revival of economic activity stemming from the recovery signals greater market growth ahead, and we are well positioned to continue to capture share in 2021. Our opportunity pipeline continues to be robust at $15 billion, and our design win lifetime revenue achievement in Q1 was up 8% year-on-year. Bookings have been very strong in recent months. With the semiconductor industry poised to deliver an excellent 2021.

Turning to our IoT business. Wireless Connectivity products continue to see surging momentum, posting greater than 40% year-over-year growth in first quarter revenue. In Q1, we saw strength across our entire wireless portfolio with robust and consistent growth in all of our major Wireless Connectivity protocols. Security continues to be critical for the IoT's expansion, and Silicon Labs has established a clear and unique leadership position in protecting IoT devices against bad actors.

In March, Silicon Labs became the world's first silicon innovator to achieve PSA Certified's highest level of IoT hardware and software security. Our Secure Vault technology sets the standard for IoT security, effectively protecting against hardware and software attacks. We have made strategic investments to ensure security is a core strength. Becoming the first company to achieve PSA Level 3 certification is strong validation of our leadership role in securing the IoT.

In addition to delivering superior security in our high-performance parts, we provide strong security in our battery optimized devices like the xG22, which just became the world's first wireless SoC to earn SESIP Level 3 certification using the Diabetes Technology Society's "DTSec" security protection profile. DTSec sets the security standard for protecting personal and confidential health care data transmitted through connected devices.

In addition to becoming more secure, the IoT is becoming more intelligent in areas such as motion detection, sound recognition, image classification and preventative maintenance. Developers innovating for these solutions face obstacles in linking their machine learning models to real-world information. To help overcome these challenges, we have partnered with Edge Impulse to enable the integration of their TinyML solution into our SoCs and MCUs. This is just one example of the ways that we are bringing the power of machine learning to developers of wireless edge devices.

Smart lighting continues to be a key growth driver for our IoT business, and we have a strong position in the lighting market, due in large part to our unique combination of best-in-class SoCs and industry-leading portfolio. Our 15.4, MESH and Bluetooth low-energy products are deployed throughout the smart lighting industry, which is growing at a CAGR of 30%. A great example of this is our work with Yeelight, who recently launched a new smart led light bulb with our BG21 Bluetooth SoC. The smart lighting product enables users to connect and control smart home devices directly from the Google Home app without the need for any other apps or software. The exceptional user experiences our technology helps deliver are influencing the broader IoT ecosystem, which will help more and more IoT products become mainstream.

We are a world leader in providing wireless connectivity solutions for the smart home, pushing the envelope to improve simplicity and ease of use. We recently collaborated with Allterco to create the Shelly Motion, a new Wi-Fi motion sensor with the world's lowest power consumption in mass production today. Shelly Motion features up to 3-year battery life before recharging and is ideal for a wide range of motion sensing applications like lighting and security.

Shelly Motion is another great example of our relentless focus on designing products specifically for the unique requirements of the IoT, with built-in compatibility with Alexa, Home Assistant, SmartThings and other third-party home automation platforms. Our differentiated IoT product offerings are winning share and preferred by the marketplace versus competing products architected on repurposed technology not originally designed to meet the unique requirements of the IoT.

Turning now to Infrastructure and Automotive. As we announced last week, we are divesting our I&A business to Skyworks Solutions with closing expected in Q3. This transaction delivers significant value to our shareholders, and we are excited about I&A's future under Skyworks.

On to results, we delivered first quarter I&A revenue growth both on a sequential and year-on-year basis and saw continued recovery in both timing and isolation product lines.

The automotive market continues to see increasingly demanding requirements for timing solutions. In the first quarter, we expanded our portfolio of automotive focused timing solutions with the introduction of new SmartClock features that actively monitor reference clocks to detect potential faults and provide built in clock redundancy to ensure safe and reliable operation.

To help emerging -- to help power emerging trends in the electric vehicle and industrial markets, we introduced a new Gate Driver Board, an all-in-one isolation solution perfectly suited for the recently launched Wolfspeed WolfPACK power module. This new board delivers superior performance to efficiently drive and protect power modules employing any switch technology, including advanced silicon carbide-based modules used in the most demanding high-power applications.

During the quarter, we bolstered our management team, welcoming Dr. Manish Kothari as Vice President of Silicon Labs, India. Manish leads the company's newest and fastest-growing wireless development center in Hyderabad, and will grow our wireless engineering talent, build scalable infrastructure and foster local and regional partnerships. Our Hyderabad development center is the result of our acquisition of Redpine Signals one year ago, adding more than 200 engineers with strong expertise in Wi-Fi technology, over 70 Wi-Fi patents and a number of highly innovative Wi-Fi products to our portfolio. The acquisition further solidified our position in the market as the market leader in IoT Wireless Connectivity and the integration of the former Redpine Signals team has gone very well. Under Manish's leadership, we continue to hire world-class talent in Hyderabad, as we build the region's top IoT wireless development center.

As we shared last quarter, we have implemented an internal program to empower employees to form resource groups, fostering a diverse, inclusive workplace aligned with our organizational values. I'm pleased to share that we have formed 3 employee resource groups, and an additional 2 are being developed. These groups are employee-led, represent a diversity of interests, and support our deep commitment to workplace equity and inclusion. Additionally, we have launched an inclusive Lexicon project to eliminate offensive terms commonly used in the tech industry and replace them with inclusive language in our corporate Lexicon.

In conclusion, our business is generating significant and strong momentum. With another quarter of record revenue, a growing opportunity pipeline and strengthen design win growth. We are now positioned to capitalize on the IoT opportunity in front of us with a singular focus. While supply chain constraints continue to impact our industry's ability to meet surging demand, we are still delivering upside results. We are collaborating with customers and ecosystems to deliver compelling new products and we are enhancing our workforce by focusing on diversity and expanding management talent. We continue to lead the market in wireless connectivity for a vast array of intelligent solutions and with a focused management structure, we are poised to capture share and lead the cutting-edge of wireless connectivity.

With the global economic recovery from the pandemic in full swing, we are very excited about capitalizing on the growing opportunities in front of us.

Thank you for your time and attention. Before we take your questions, I'd like to turn the call back to Austin Dean. Austin?

Thank you, Tyson. We would now like to open the call up for your questions. (Operator Instructions). Matt, back to you.

(Operator Instructions) Our first question will come from Gary Mobley with Wells Fargo Securities.

I want to ask a multipart question about gross margin. It sounds as if you had a higher-than-expected mix of radio in IoT, which I believe is perhaps margin dilutive. But despite that, you beat for the quarter. I wonder if you can give some reason or rationale behind that. And then as it relates to the headwinds from higher input cost as it impacts your gross margin, can you quantify the impact in the near term? And as it relates to passing on the price increases, where might you be getting some push back from customers?

Thank you, Gary. On the -- this is John. On the first part of your question, as we talked about before, technology mix is relevant. But what's also relevant is the end market and customer mix. And we did see strong results in the first quarter in our industrial and commercial part of the business, metering was strong in Q1, which was constructive for IoT margins. As an example of that, looking at the input costs, we don't have a hard number to give you, but you clearly can see a point or so of margin impact. And as we work through our competitiveness in the market and desire to grow share. We're continually assessing how to transfer that on to the customer base, and that's an ongoing process for us.

I appreciate that color. And in your presentation last week, you outlined a goal of achieving roughly $650 million in sales for the IoT business. And you mentioned in your prepared remarks that you expect continued supply chain constraints for at least a few more quarters. But I'm curious to know whether or not in that $650 million revenue expectation for IoT, you might have factored in any capacity constraints extraneous to SLAB's supply chain?

Yes. In the revenue guidance that we gave for IoT for the year, we are factoring in known supply chain constraints. That is a supply-constrained number.

Our next question will come from Blayne Curtis with Barclays.

Maybe just following up on Gary's question there. If you -- in the outlook for the year, you had IoT margins kind of 57%. It seems like for the June guide Infrastructure, which has been kind of flat for a bit, is up sharply. So maybe you could talk about that. And then specifically, I guess, if IoT margins are 57%, seems like Infrastructure margin is going down. Maybe just talk about the mix there.

Yes, Blayne. First, on the upside for Infrastructure in Q2, we're seeing strength in automotive, timing and isolation, sort of where you would expect that. So that's very positive for the I&A business, and great to see that. And similar dynamics at work with some input costs, increasing their related to supply chain situation affecting I&A as well as IoT.

Got you. And then maybe just a longer-term question, maybe an Analyst Day, but in the long-term targets, you kind of showed an effective doubling of that $650 million not the growth rate. I mean, Tyson has been talking about IoT can maybe even grow 30%. You're kind of there this year. Just kind of maybe can you put some time frame as to what that long-term is or maybe what kind of how you see the IoT CAGR going forward?

Yes, Blayne, we tried to articulate that in the deal call last week of identifying a 20% as CAGR opportunity over time here. So hopefully, that can give you a sense of the doubling time that could be achievable if we're able to sustain that, which we believe is possible. So we did try to go ahead and call that out. This is a strong year for sure, and we have a lot of momentum in the business right now.

Our next question will come from Craig Hettenbach with Morgan Stanley.

On the strength that you're seeing in the wireless IoT in the quarter as well as your expectations going forward, can you just talk about implications from market share and where you're seeing the best momentum?

Yes, Craig, this is Tyson. The -- we're seeing strength in wireless really across protocols and across a number of different market segments. We outlined some of those things like lighting, industrial automation, retail, shelf tags, smart home, a lot of the mesh networking, a lot of the Bluetooth applications and things like portable medical. So it's kind of an across the board in terms of different applications and different wireless protocols where we're seeing the strength in wireless. And those are trends that are going to just continue year after year. If you think about IoT, it is a long-term trend, not just something that's going to happen in 1 area and then and then dwindle away. The projections are that the IoT wireless market will grow at a 15% CAGR over the next decade. And so our target of a 20% CAGR means that we will be gaining share over that timeframe, while the market continues to grow.

Got it. And then just a follow-up question on tax, kind of going from the low to mid-20s on a combined basis. Anything to note on just the IoT piece for a tax implication longer term?

Yes, Craig. Similarly, facing the dynamics around the increase with the change in the tax law, we'll be further refining that as we we move to our continuing operations model, but a similar type of increase based on current law. And I will add that, obviously, a lot's happening in D.C. right now. We're watching that carefully, and the landscape could change depending on what happens with legislation.

Our next question will come from Raji Gill with Needham & Company.

Just a question. If you did not have supply concerns related to IoT, any sense in terms of what the IoT growth rate would have been in 2021?

Yes, Raji, it's -- we're not able to provide a hard number to you, but suffice to say that we exited the first quarter, as we did exit the fourth quarter with a unusually high amount of unmet demand.

So it would be a big number, Raji. But we the entire industry is constrained, and we're working through that best we can.

And you talked about supply constraints, lasting persisting for kind of several quarters. Any kind of insight or color in terms of how the industry is progressing in terms of supply and capacity, these are kind of lagging edge nodes where there are supply constraints you kind of gave somewhat of a time frame, but any sense in terms of what steps the industry is taking in order to try to increase the capacity, particularly on these lagging edge nodes?

Yes. So the industry is -- TSMC has announced a number of investments in mature technologies and this is really 28-nanometer and above. So this is -- it's not the 3-nanometer and 5-nanometer and 7-nanometer at the advanced nodes. But what's happened is that a lot of the in addition to strong demand, we've also had a focus of all the CapEx into the advanced nodes. And then because Moore's Law is pushing the limits here. A lot of products have gotten left behind in the N minus 1, N minus 2, N minus 3 nodes. And so that has also filled up the mainstream technologies.

Right now, it's safe to assume that for the remainder of the year, we are going to be in a supply-constrained situation. There's incremental improvements that can be had but it takes a little while to get other sources of supply qualified. And certainly, to the extent that we have to build new fabs and mainstream, which is not the way it used to work. It used to be that they would focus on advanced nodes and the mainstream nodes would empty out, but we're getting into a situation where the demand for semiconductors is exceeding that model and the slowing pace of Moore's Law migration is adding to that. So it's -- I believe that this will persist into 2022, but certainly for the remainder of the year, we're going to be in a supply chain constrained situation.

And just for a follow-up. In terms of your kind of long-term strategy in IoT, you're pretty much dominating wireless by servicing all the different type of standards that are available there out of your multi-protocol, multi radio so are there other connectivity technology, such as cellular, massive IoT that you're considering when you are now thinking about IoT and becoming kind of the leader in IoT going forward?

Yes. Certainly, we look at a lot of the other technologies in cellular. But I think when you when you think about strategy, and one of the things that we're accomplishing with the sale of our I&A Group is to obtain focus to be able to focus on this massive opportunity in IoT. And I think even within IoT, it's very important that we focus on the most important things and that we don't get spread too thin.

And one of the -- you look at the standards that we are addressing from Wi-Fi, Bluetooth, all the MESH networking, Z-wave, the Zigbee, Thread, and then all of the industrial proprietary protocols that we can also run those onto our chip. There's a massive opportunity for that. And if we focus and execute on our vision and continue to push that with -- into the next process technology nodes and to really build up our Wi-Fi business and our Bluetooth business, we have a long runway of growth without having to necessarily add another protocol.

And in fact, adding another protocol, especially going after cellular, could be seen as a distraction from the success in these other large areas. So it's something that we're keeping our eyes on, but also being very careful to make sure that we maintain that focus on what the really big prize is, which is the standards that we're on is a massive growing market, and we've got to make sure that we ensure success in that.

Our next question will come from Matt Ramsay with Cowen.

John, I wanted to ask a little bit about the -- after the I&A sale, the pro forma business and the concentration the IoT business on distribution. Is that materially different than the combined company has been? I think my observation would be probably, yes.

And then secondly, with the supply constraints, I imagine you're on books inventory and your inventory in the channel are below levels right now in the IoT franchise that you'd like to run that business at in a steady state basis. If you could talk a little bit about where the IoT businesses from an inventory perspective versus what inventory might be -- need to be rebuilt as we get back to supply-demand parity at some point here?

Yes, Matt, certainly. On the first question, IoT is a relatively distribution heavy business with a broad base of customers, outstanding support from our distribution network so we expect that to be on the high distribution side of how we operate. And on the inventory question, you're right. The channel inventory is lean, and we'd like to see some build in the channel inventory levels. And the IoT business would normally operate with a relatively higher level of inventory inside than the company average. You tend to see faster turns on more vertically oriented businesses. With a broad-based business like IoT, it makes more sense to carry a bit more inventory. And we're not there right now.

Got it. Tyson, just a bigger picture question and just, I guess, a reflection of some investor feedback I've gotten in the last week or so since the deal was announced. You look at the IoT franchise, 20% growth going forward, as you've outlined, a $15 billion IoT TAM, I don't know, I would imagine you guys have agreed that we're in the early innings of this IoT market phenomenon. And then you get $2 billion in the door that you earmarked to give back to shareholders. I wonder what the debate has been within the management team and the Board, feedback from shareholders as to use of that proceeds. My observation is a bit of a scarcity value of high-growth quality in your market cap range in public companies. And I wonder if investors might ask the question, what other uses of that cash could there be to grow the business further versus just returning it to shareholders? So any big picture thoughts there would be really helpful. Appreciate it.

Yes. I mean, we're going to have a substantial cash balance here after completing the sale of I&A. And you don't want to have cash sitting on the balance sheet. And it's our belief, both the staff, my staff and the Board that returning that to shareholders is an important priority. That being said, we have a massive opportunity in front of us. And the TAM will go to on the order of $10 billion plus. And we want to ensure success. So we will be focused on execution. I think as we execute the transaction and we move our I&A team over to Skyworks, we've got optimization and execution within the company that is going to be very important for us to focus on. And there are a lot of efficiencies to be gained by having this pure-play focus and both in terms of brand, in terms of culture, in terms of engineering execution, in terms of systems. And we've got to make sure that we take full advantage of that and do not want to get distracted with an immediate acquisition.

I would also just add 2 other points. One is that with our narrowed focus on IoT, that necessarily narrows the range of targets that we would potentially be interested in. And certainly, we've been active and done a number of acquisitions within the IoT area. But now that would be our pure focus in terms of M&A. And even after we return that money, we will have a substantial cash balance to continue that. So I think, overall, the right message to send is that we're going to return this either in the form of dividends or share repurchase. We're going to be getting feedback from our investors. And welcome feedback on the mechanism and exactly how to deploy that. But we do think that, that's the right thing to do and really focus on execution and optimization around our IoT business.

Our next question will come from Srini Pajjuri with SMBC Nikko Securities.

John, on the guidance for IoT being flattish for next quarter. If I take the run rate, I think you pretty much get to your low end of your $640 million to $660 million forecast for the year. So is that how you're thinking about the second half? And also, if you could remind us if there's any seasonality to this business that we should think about and how that might change as you get more supply over the next few quarters?

Yes, Srini, you bet. We're going to see if we can drive some sequential growth in the second half. That's certainly possible. But I think you're thinking about it the right way, directionally, and yes, there's really less seasonality in the IoT business than some of our other product categories like broadcast video, for example, which has more of a consumer focus, you do tend to see the general first quarter softness that's simply common in the industry. But apart from that, it's more of a broad-based secular trend.

Got it. And then just going back to the in divestiture could you remind us some of the mechanics, John, you said you expect to close the deal in Q3. And when do you anticipate receiving the cash? And how soon after that do you anticipate making the decision about the potential usages of the cash, whether it's a buyback or dividend or something else?

Yes, Srini. We expect to receive the cash at closing. And the capital deployment will be after that. We'll be consulting with the Board further as well as taking input from investors as Tyson just indicated, depending on the technique that's finally put to work here, that can affect the time horizon. I think we're -- can measure that and months and quarters of time, not years of time, that's sort of how we're thinking about it.

Got it. And then one last one. On the Redpine acquisition, I think last time we spoke, you said the progress has been pretty much as expected. If you could just remind us how that's progressing and what are some of the mileposts that you're kind of looking at and if there is any revenue contribution that you want to highlight? I think that would be helpful.

Yes. We believe that we are on track to the targets that we set out with the Redpine acquisition. And I would say, we talked in the script about Manish Kothari joining as VP of India. So we are investing in that design center. I want to make that the leading wireless design center in India. And we have a strong team there, over 200 people with experience in Wi-Fi, continuing to integrate those products into our platform and into our road map, both from a hardware and a software perspective, continuing to execute on the next generations of Wi-Fi technology. And so we expect to be bringing those new, more optimized products out into the market here over the next year. So it's -- overall, very pleased with the team, very pleased with the technology and really, the most important thing is that we take that, integrate it into our platform and make that accessible to a broader range of applications and customers. And I think that, that will allow us to really turbocharge the Wi-Fi revenue beyond what we talked about initially.

Our next question will come from Tore Svanberg with Stifel.

Congrats on the revenues and also to Matt and Daniel for their promotions. First question is on the PSA Certified Level 3 that you achieved with Secure Vault. Tyson, you're the first center of the company that gets that. Could you just elaborate a little bit on how important that is? And how do you intend to monetize the security here, whether it's monetizing it itself or perhaps getting higher content or higher ASPs with your IoT products?

Yes. I mean, the PSA certification was a pretty big deal in the industry in terms of really hitting the top levels of security that are required. And this is both software and hardware, making these devices kind of impenetrable from hackers and endpoint attacks and that sort of thing. And so we've built in a number of features into the chip and also the way we've designed the security architecture and the software and the way it connects to the cloud and exchanges keys and all of that. So it's the entire -- we've thought about kind of the end-to-end security all the way from the Silicon all the way to the cloud and are implementing that in our Series 2 devices, and then certainly, we'll be further enhancing that in our Series 3 devices.

In terms -- once you have security at this level, and you can think about it like your credit card, you have the little chip on your credit card or within your phone, you have a sim card in IoT, each device will have a unique ID. And that general concept, not only can you communicate securely, but you can address those devices in terms of updates or in terms of enabling functionality. And those create additional revenue streams. And we are seeing a small amount of revenue from security and device management and that stuff today. But that is something that, over time, as we roll this out and as we mature our software stacks and get further penetrated into a lot of these applications. We believe that, that can be an additional revenue stream. It's not something that we're necessarily forecasting yet at this point. But the ability to address these devices individually in a completely secure way and to have updates and functionality enablement is something that we are looking very carefully at.

Very good. And as my follow-up, I know you work with several different foundries today. But as you go through the divestiture, does that really change in a material way, or do you expect to continue to work with the same foundries?

Yes. Actually, the supply chain for our Infrastructure and Automotive business and our IoT businesses were actually somewhat different. So the fact that we are divesting I&A actually simplifies our supply chain to a significant degree, and that is one of the benefits that we get. So there were a number of foundries that were used on the I&A side that are not used on the IoT side.

We have a very close relationship with TSMC, a 25-year partnership with those guys, and they've done a good job for us. While at the same time, everybody's struggling with capacity. And so we're looking at additional relationships there that could expand capacity and also continuing to work with TSMC to ensure that they're making the investments and we have access to sufficient capacity to support our growth.

Next question will come from Bill Peterson with JPMorgan.

Yes. I was hoping, can you help quantify where the lead times are currently? Are they extending from the last quarter? And is there a difference between lead times between IoT and industrial SMB Infrastructure and Automotive businesses?

Bill, this is John. Yes, lead times have definitely extended out. I mean, we've had in the past lead times running around 7 weeks or so of order book coverage we're looking on average now of half a year, even on some product lines longer than that. And that's pretty well across the board on that across the -- of the various businesses that we have.

Okay. And the second part is someone multipart question on IoT. Following an earlier question, of the 25% to 30% growth expected, I guess, where do you see more contribution from end markets, home and consumer or industrial and commercial? You talked about some of the drivers. But I guess with supply constraints, are you focusing more on long-lived industrial or commercial focused? And I guess kind of longer term, all have sort of one reporting segment, but we report more granularly on the type of, let's say, protocol growth or market growth I guess, anything that can help measure the progress on your share gains and relative performance versus peers?

Yes. Bill, this is John again. We're seeing consistent growth in the 2 areas between home life and industrial and commercial. And part of our strategy here in the upside performance with the supply limitations is to be fair and really treat customers well in this scenario. We have a long tail of smaller customers who we need to be mindful of. As we allocate scarce capacity, and that's something that we're also doing as we also deliver upside with larger customers. So have to be mindful of those things. And as far as the forward reporting, we're working through that, and we'll have more to report later on exactly how we're going to break that out going forward, starting around the next call.

(Operator Instructions) Our next question will come from Alessandra Vecchi with William Blair.

Just as a clarification question on the IoT side of the business. Any color on how we should think about microcontroller growth going forward over the next few years?

Alessandra, this is Tyson. The big growth in IoT is on the wireless side. So this last quarter, we were 44% up in wireless year-on-year. And if you just look at the mix between MCU and wireless, the mix is going to more and more shift towards wireless over time. We continue to make incremental investments in our MCU portfolio on the 8-bit side, I've been refreshing some of that and see good opportunity on the 8-bit side. And we also you have to remember that all of our wireless chips have a microcontroller in them.

And so, to the extent that those can be redeployed into the microcontroller market, we opportunistically sell those devices with microcontroller functionality in cases where you might need a microcontroller as well as a wireless chip or something like that. So we do see MCUs as an important business on to itself, but also as an important component of wireless. So in reality, all of our IoT business is microcontrollers and but the attach rate of wireless to those products is going to continue to rise as we see the proliferation of the wireless connected IoT.

That helps. And then maybe just one for John. While somewhat of a moot point, but until the model is transitioned over to IoT-only, should we still be thinking about roughly that 7% OpEx growth on a combined basis that you gave as annual guidance last quarter?

Yes. Alex, thanks for the question. With the upside in revenue, we are seeing some increase in variable compensation and 9% to 10% is a more rational view on OpEx and given the strong upside in revenue that we're seeing.

This concludes our question-and-answer session. I would like to turn the conference back over to Austin Dean for any closing remarks.

Thank you, Matt, and thank you all for joining us this morning. That concludes today's call.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.