Semtech Corp (SMTC) 2012 Q4 法說會逐字稿

Good afternoon. My name is Natalie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation Q4 FY 2012 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

(Operator Instructions)

Thank you. Ms. Linda Brewton, you may begin your conference.

Thank you, Natalie. Welcome to Semtech's fourth quarter and fiscal year 2012 conference call. I'm Linda Brewton, Senior Manager of Investor Relations. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer, and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results for the quarter ended January 29, 2012, was issued after the market closed today, and is available on our website at www.semtech.com.

Today's call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in those statements. For a more detailed discussion of those risks and uncertainties, please review the Safe Harbor statement included in today's press release, as well as the other risk factors section of our most recent periodic report on Forms 10-Q and 10-K filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only. Semtech undertakes no obligation to update the information on this call should facts or circumstances change.

During the call, we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. A discussion of why the management team considers non-GAAP information useful, along with detailed reconciliations between GAAP and non-GAAP results, are included in today's press release. I would also like to mention that Semtech will be participating as a presenter in the Williams Financial Group Management Discussion series teleconference on Wednesday, March 28, 2012. The dial-in information will be posted to the Investor Relations section of our website. With that, I will now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu.

Thank you, Linda. Good afternoon, everyone. I will provide a brief update on our recent acquisition activity, and then discuss our Q4 financial performance in detail. At the end of Q4, we signed a Definitive Agreement to acquire Gennum Corporation, a Canadian analog semiconductor company with leadership positions in the video broadcast and data communications markets. The proposed transaction has received preliminary approval from the Ontario Superior Court of Justice, and is now pending approval by Gennum's shareholders and final approval from the Ontario Superior Court of Justice, both of which I expect to occur later this month.

Upon close of the transaction, Semtech will begin reporting on Gennum's performance as a fixed product group. Please note that our Q1 guidance does not include Gennum. We will provide more information to you after the close of the transaction. Also today, we announced we acquired Cycleo, a French Company specializing in long range video frequency IP. To effect the transaction, we paid Cycleo's shareholders $5 million. The shareholders will be eligible for an additional $15 million in cash, upon achieving certain revenue and operating profit targets over the next four years. We do not expect this acquisition to have any material impact on our fiscal year 2013 earnings. Mohan will discuss the strategic rationale for this acquisition in his prepared comments today.

Now turning to our quarterly financial results. Consistent with the guidance we provided in our Q3 earnings call, Semtech's revenue for the fourth quarter of fiscal year 2012 was $104 million, representing a decline of 16% from Q3, and a decline of 11% from Q4 of fiscal year 2011. In addition to the seasonal weakness that we typically experience in the fourth quarter, Q4 of fiscal year 2012 was negatively impacted by the flooding in Thailand, and overall macroeconomic weakness. Despite a challenging fourth quarter, we ended fiscal year 2012 with annual revenues of $480.6 million, up approximately 6% from fiscal year 2011.

In Q4, 64% of our shipments were derived from customers in Asia, 21% from North America, and 15% from Europe. Sales in Asia declined 15%, driven by broad-based softness in the high end consumer, communications, and computing end markets. Europe declined 16%, as the result of weakness across all markets. Revenue in North America declined 19% sequentially, driven primarily by softness in the sales -- in sales in the defense and communications end markets.

Direct sales represented approximately 56% of total revenues, while distribution made up 44%. Our book-to-bill was approximately 1. Turns bookings accounted for 40% of shipments during the quarter. Gross margin on a GAAP basis for Q4 was 57.4%, down from 59.2% last quarter. The decline was driven mainly by less favorable product mix, and lower manufacturing volumes resulting from a combination of weaker demand and the impact of the Thailand flood.

In Q1, we expect gross margin to be flat to up 100 basis points, primarily due to a higher physical mix of industrial and communications revenue. For the full-year, GAAP gross margin was a Company record of 59.4%, compared to 59% in fiscal year 2011. Operating expense on a GAAP basis declined 4.8% sequentially to $47.7 million. This decrease was driven by lower [payroll] expense resulting from holiday time off programs, lower variable expense associated with lower revenue, and the elimination of one-time expenses incurred in Q3. These decreases were partially offset by higher acquisition-related expenses.

In Q1, we expect our operating expenses on a GAAP basis to decrease slightly due to lower equity compensation and lower acquisition related expenses, partially offset by higher new product expenses. Q4 GAAP operating profit was $11.9 million or 11.5% of sales, down from 18.7% in Q3. For the full-year, GAAP operating profit was a record $93.6 million or 19.5% of sales, up from $78.8 million or 17.3% of sales in fiscal year 2011. We recorded a gain of $421,000 in interest and other in Q4, down from $729,000 recorded in Q3. The decrease was driven primarily by foreign currency translation and lower interest earnings. We expect interest and other income of approximately $200,000 in Q1.

In Q4, we had a slight GAAP net tax benefit due to a favorable regional income mix. We expect our GAAP tax rate for fiscal year 2013 to return to a normalized run rate of 9% to 11%. The diluted share count for Q4 was 66.8 million shares. We expect a fully diluted share count of approximately 67 million shares in Q1. Our GAAP net income for the quarter was $12.4 million or $0.19 per share on a fully diluted basis, down from $27 million or $0.40 per share in Q3. GAAP net income for the full-year was $89.1 million or $1.32 per share on a fully diluted basis, up from $72.6 million or $1.12 per share in fiscal year 2011.

On a non-GAAP basis, excluding the impact of equity compensation, amortization of acquired intangibles, stock option investigation related expenses and other one-time expenses, gross margin was 57.6%, down from 59.4% in Q3. We expect Q1 non-GAAP gross margin to be flat to up 100 basis points. Non-GAAP net income for Q4 declined 38.3% sequentially to $21.6 million or $0.32 per diluted share. Our non-GAAP effective tax rate for Q4 was 7.1%, up from 4% in Q3. We expect our fiscal year 2013 non-GAAP tax rate to be in the range of 13% to 15%.

During the quarter, we spent $20 million to repurchase 883,000 shares. Our total outstanding authorization is now $50 million. In Q4, cash flow from operations was approximately $26 million or 25% of revenue. Our cash flow at the end of the quarter was approximately $328 million of cash and investment, up 3% from Q3. The Company spent approximately $4 million on property, plant and equipment in the quarter. In Q1, we expect to spend approximately $5 million, primarily to support new products. Depreciation for Q4 was approximately $2.7 million. In Q1, we expect depreciation to be approximately $2.8 million.

In Q4, accounts receivables declined 17% sequentially, driven primarily by lower revenue. Days sales outstanding grew to 48 days from 41 days in Q3, which is above our target range of 40 to 45 days. We expect days sales outstanding to return to normal ranges in Q1. Net inventory was flat to Q3 in dollar terms. On a days basis, it increased from 87 days in Q3, to 97 days in Q4, due to lower revenue and putting inventory in place to minimize the impact of supply risk due to the Thailand flood and Chinese New Year.

In summary, while Q4 was a [substantial] revenue quarter, we kept our expenses in check while continuing to invest in future growth opportunities. On a full-year basis, fiscal year 2012 set a new bar for revenue, gross profit, operating profit and net income, demonstrating the combined strength of our strategic focus and flexible operating model. I will now hand the call over to Mohan.

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year 2012 performance by end market, and by product group, discuss our fiscal year 2012 performance, comment on our acquisition of Cycleo announced today, and then provide our outlook for Q1 fiscal year 2013. And also provide a brief update of our pending acquisition of Gennum.

In Q4 of fiscal year 2012, we achieved net revenues of $104 million, in line with our prior guidance. This was down 16% from Q3 of fiscal year 2012, and down 11% from Q4 of fiscal year 2011. For the quarter, our non-GAAP gross margin was 57.6%, and our non-GAAP diluted earnings per share was $0.32 per share. In Q4, revenue from the high end consumer end market decreased from the prior quarter, and represented 36% of total revenues. Approximately 22% of this revenue was attributable to hand-held devices, and approximately 14% was attributable to other consumer systems.

Revenue from the communications end market declined sequentially, and represented approximately 38% of total revenues. Revenue from the industrial end market declined sequentially, and represented 17% of revenues. And revenue from the computing end market also declined from the prior quarter and represented 9% of revenues.

Now let me discuss the performance of each of our product groups. In Q4, our protection business declined 17% sequentially, and represented 45% of Semtech revenues. The decline was driven primarily by softness in the high end consumer market for applications such as smartphones, LCD TVs and tablets, as well as weakness in the communication space. The protection market continues to grow, due to the proliferation of high performance interface ports on electronics devices. In addition, as advanced processes transition to next-generation lithography nodes, these devices become much more susceptible to catastrophic ESD events.

As acknowledged leader in high performance protection platforms, Semtech is well-positioned to benefit from these industry trends. Q4 was another record quarter, in terms of design wins for our protection business. And during the quarter, we launched a number of low capacitance protection platforms for use in space-constrained applications, and high speed interfaces such as USB and HDMI. In addition, we also launched a new single line protection platform targeted at space-constrained portable applications such as GPS, TV antenna and touch screen interfaces. In Q1, we expect our protection business to be flat to slightly up from Q4, driven primarily by a modest recovery in the high end consumer market.

Turning to our advanced communications products group, which includes our 40 gigabit per second and 100 gigabit per second SerDes platforms, our ToPSync timing synchronization platforms, and our microwave communications platforms. Revenue in Q4 decreased 11% sequentially, and represented 28% of total revenues. The decrease was driven by overall demand softness across all segments of the communications market. Regionally, weakness in North America, and Europe was partially offset by strength in Asia. As demand for communications products improves, we expect to see acceleration in the growth of our 40 gigabit per second, 100 gigabit per second and timing sync businesses.

In Q4, we experienced strong design win traction for our communications platforms. These design wins included several very notable 100 gigabit per second coherent application design wins with Tier 1 OEMs. These design wins will start to generate meaningful revenues in the second half of this year. In addition, our ToPSync timing platform continues to gain traction in high performance IEEE 1588 timing synchronization applications. In Q1, we expect revenue from our advanced communication business to be roughly flat to Q4.

Now turning to our power management and high reliability business. In Q4, revenue for this product group decreased sequentially by 12%, and represented 16% of revenues. The decrease was driven primarily by softness in the consumer and communications end markets, partially offset by growth in high reliability products from the industrial market. In Q4, we experienced solid design win traction for our power management platforms. We recently launched the first device in our innovative high frequency 20 megahertz switching regulator platform. Our SC220 buck regulator enables designers to draw their own inductors directly on the PCB, and offer them ultra-fast switching frequency, which improves the EMI performance of chip inductors. This product will enable customers to reduce their bill of materials, and is ideally suited for set-top box, HDTV, automotive and industrial applications.

In addition, our latest boost LED driver for LCD backlighting was recently named Product of the Year by EN-Genius Network. This enables customers to design ultra-thin displays without sacrificing efficiency, and resolve noise and EMI issues commonly experienced when using conventional boost-based LED drivers. In Q1, we expect our power management and high reliability revenue to decrease slightly, driven by softness in the computing and military markets.

Moving on to our wireless and sensing business. In Q4, revenue for our wireless and sensing business declined 29% sequentially, to represent 11% of total revenues, driven by broad-based weakness in all geographies and end markets. However, we continued to see strong design win traction for our wireless and sensing products during the quarter. In Q1, we expect sales for our wireless and sensing product group to be flat to slightly up, driven by modest growth in the industrial end markets.

In Q4, we saw distribution POS decline by approximately 15%, in line with our overall revenue. The decline was driven mainly by handheld and other high end consumer markets, as well as overall softness in the communications end market. Our distributor business, much like the overall Semtech business is very well balanced, with 54% of the total POS coming from consumer and computing end markets, and 46% of total POS coming from industrial and communications end markets. Distributor inventory increased by 12 days, from 66 days in Q3, to 78 days in Q4. We believe that our channel inventory is in line with normal seasonal patterns, and within our 70 to 80 day channel inventory model.

Moving on to new products and design wins. In Q4, we released 21 new products, and achieved a record 1,087 new design wins. We believe that we are uniquely positioned to benefit from long-term trends, driving growth for our industry, and expect to see a continuation of the strong design win momentum in Q1.

Now let me comment on our fiscal year 2012 results. Fiscal year 2012 represented yet another record revenue year for Semtech. In addition to record revenues, on a non-GAAP basis, we generated record gross margin dollars, record operating income, record net income, record earnings per share, and generated record levels of cash from operations. In addition, we generated a record number of design wins, which indicates that our organic growth engines should continue to grow as the overall market demand strengthens.

Let me briefly discuss today's announcement regarding the acquisition of Cycleo. A fairly large number of wireless applications in the industrial wireless market are essentially faced with communication range challenges. These applications such as metering, overcome these issues by adding repeaters in the infrastructure. However, this is an expensive solution. The combination of Cycleo's long range IP and Semtech's high performance RF platforms enables significant range extension for applications such as smart metering and other industrial wireless applications, removing the need for some of this expensive infrastructure.

Given the numerous applications for this technology, we believe it could double our market opportunity in the wireless and sensing space, over the next three to five years. We are excited about the addition of Cycleo to Semtech, and expect a relatively straightforward integration, with minimal disruption to our day-to-day operations. We expect Cycleo to be neutral to revenue and earnings in FY 2013, and accretive to earnings beginning next year.

Now let me briefly comment on the acquisition of Gennum. Our integration planning is moving ahead nicely, and we continue to believe that the strategic fit between Semtech and Gennum is extremely good. Once the acquisition of Gennum is complete, we believe Semtech will be in a very strong position to deliver 1 gigabit per second, 10 gigabit per second, 40 gigabit per second, and 100 gigabit per second platforms to both the core infrastructure long haul telecom market, and to the metro and access shorter reach datacom enterprise computing markets. In addition, Semtech will become a leader in delivering high-definition video platforms to the high-definition broadcast and surveillance markets. We also believe that the cost synergies we originally anticipated are achievable, and there will be greater revenue synergies than we had originally anticipated.

Now let me discuss our outlook for next quarter. Our fiscal first quarter has historically been a seasonally weak quarter for Semtech. Based on recent booking trends and our backlog entering the quarter, we are currently estimating Q1 net revenue to be between $102 million and $108 million. To attain the mid point of our guidance range or approximately $105 million, we needed net turns orders of approximately 42% at the beginning of Q1. Our guidance does not include any anticipated revenue impact from either Gennum or Cycleo. We expect our non -- Q1 non-GAAP earnings to be between $0.28 and $0.32 per diluted share, and GAAP earnings to be between $0.17 and $0.21 per diluted share.

While Q4 was a challenging quarter for our industry, and the overall global economy, we are hopeful that recent signs of recovery in the macroeconomic landscape have signaled that we have reached the bottom of the current downturn. We believe fiscal year 2013 will be another growth year for Semtech, as we are extremely well positioned by end market, product group, geography and financially, to benefit from an improving economy. I will now hand the call back to the operator. And Linda, Emeka, and I would be happy to answer questions. Operator?

(Operator Instructions).

Your first question comes from the line of Terence Whalen with Citi.

Hi, thank you. This is [Beams] speaking for Terence. My first question is regarding, to the order trend. Can you please comment with book-to-bill approximate 1, can you give us some linearity about the order trend starting from the quarter entering into March? Thanks.

So I think the question you were asking, was about order linearity. Bookings have been improving. I think, once we -- last quarter, the bookings were pretty soft. As we mentioned we had a book-to-bill of about 1, as we exited the quarter. Coming into this quarter, I think the bookings have started to improve across the different end markets. I would say that, what we've seen is obviously, last quarter, all the end markets were down significantly. So bookings were softer in all of the markets, but communications has come back quite strong from a bookings standpoint. And that's probably the strongest area, but linearity is fairly consistent, I would say.

All right. Thank you. And then my follow-up, for the next quarter guidance, I remember in the last quarter earnings call, you mentioned probably we can grow seasonally for April. But now with the flattish guidance, what makes you change your view? And in addition, what happened to the negative revenue impacts from Thailand flooding? Do we continue to see the impact, from both demand side and supply side? Thanks.

So, yes, if we go back to Q4, what we said -- Q3, what we said for Q4, was that there was going to be about $2 million of supply side impacting Q4. That's about what we saw. Now we're also expecting that same number in Q1, as we don't see any recovery on that side for at least another quarter. On the demand side, we said it was about $5 million of impact, $3 million I think optical, $2 million consumer, something like that. And I think we're going to see similar in Q1. The demand has not picked up yet.

I think probably it will be Q2 before we start to see that recovery. And then again, on your other question on, on what's happening with demand in general, it's across-the-board weakness. Industrial was down 17%, consumer was down 17% sequentially, communications was down 14%, computing was down 16%. So I don't think it's -- you can point to one area of weakness. I think it's just general weakness. Having said that, the fact that we're guiding to a flat to modestly up mid point, I think suggests that we believe that things are improving.

All right. Thank you.

Your next question comes from line of Craig Ellis with Caris & Company.

Thanks for taking the questions. First, as a follow-up. Mohan, you mentioned that communications bookings were coming back strongly. Can you provide more color on where you see that happening, either from a product standpoint or a customer geographic standpoint?

Yes, the com business is the one area where bookings was a little bit stronger. And we continue to have very good design wins on the 40 gig, 100 gig side. Obviously, particularly in Asia, we feel very good about some of the opportunity there, based on what we're hearing about, our customers winning in certain service providers. But I would also say, the timing synchronization area is, also seems to be coming back a little bit. I would say, it's just generally across the board. I don't think there's -- com has come down now, has been coming down for the last couple of quarters. And so to start to see it increase, I think is promising.

Okay. That's helpful. And then as a follow-up to the comment on Gennum, where you said you think you are seeing potential for greater than initially expected revenue synergies, can you quantify how much that might be, or where you think those are occurring?

Well, initially, we had not planned on any revenue synergies. And now we think that there is -- there are at least several million dollars of revenue synergies, probably more. But as we dig deeper into the different markets, and the customers and the product areas, we're finding there are definitely areas where we can bolt on some power management and protection devices on to their platforms, and generate additional revenue. And I think also on the data com side, where Semtech has not traditionally played, there are going to be opportunities to add some power management protection products to some of the optical components and line cards and modules, et cetera.

Thanks.

Your next question comes from the line of Steve Smigie with Raymond James.

Great. Thank you. Given the fact that you're seeing the pick up in the communications orders, and that it seems like maybe in the July quarter, should be getting back some of the Thailand revenue, would it be fair to say, that we should expect a pretty decent up sequential quarter in July?

That is the hope, Steve. (Laughter).

Okay. And then with regard to R&D as a percentage of revenue, how should we be thinking about that throughout the year, is that going to be a similar level to what you sort of indicated here for the April quarter, or would it sort of work it's way down? I mean, I guess, a little bit, it seems like the April R&D dollars, as a percentage revenue is a little bit higher. And I was thinking, would that work it's way down -- is there anything special about this quarter? Thanks.

So Steve, Emeka here. As a percentage revenue, you would typically expect that you will see some leverage, as we start to get a return in top line growth. The only caution there, would be that a lot of this, especially on the R&D side, a lot of that also depends on the timing of the tapeouts, the timing of the new product expenses. So just a general response to your question is, yes, I would expect that to be flattish to slightly down, as we start to get top line growth again. But there could be some periods where, as a percentage of revenue, it goes up slightly, just based on the volume of tapeouts and stuff like that.

Okay, if I could sneak one more. So with regards to the acquisition you announced today, I think you said, it's no impact to EPS or revenue this year. I mean, does that mean that there's no revenue really at the Company? I guess, I'm trying to understand why there wouldn't at least be some operating expense impact that comes on line, even if it's a lower revenue Company.

Yes, so Steve, Cycleo had a little bit of revenue they generate from their IP, that we expect would just offset the incremental operating expenses.

Great. Thank you.

Your next question comes from the line of Harsh Kumar with Morgan Keegan.

Hi, a couple of questions. Correct me if I'm wrong. Did I hear that distribution inventory went up by 12 days? And if that was the case, I think it's a little bit of a different trend than we're seeing in other companies. Maybe Mohan, you could explain to us why that happened? And then also, what area you're seeing days of inventory go up in?

Well, days went up. It was mostly driven though by lower POS, so specifically consumer and I think some com areas where the end market, the distributors just weren't shipping as much revenue from their end. And so, days went up. I don't think -- I think as we're going into Q2 and Q3 period here, where one would expect demand to start improving, especially if the macro comes back, I don't think it's anything to be too concerned about.

Okay, great. And then orders, just generally stepping away, I know you talked about communication orders Mohan, but what other areas are you seeing a little bit of positive activity in, if you were to go through your markets?

I think the consumer is coming back a little bit. I would say, the one that's most concerning is industrial is very, very soft, and industrial covers -- aerospace, medical, general industrial kind of applications, and it's pretty weak across the board. So I would say computing is also okay, it's not falling off a cliff or anything like that. So I would say com and computing are doing okay, consumer is bouncing back a little bit, industrial seems to be very weak.

Fair enough. Fair enough. And then I saw that, I think in your commentary, Mohan, you said wireless sensing was down, I believe 29% sequentially. Was there any particular territory, geography or product that just absolutely accounted for much of that?

No. It was pretty much across the board. We have medical customers that weren't doing so well. There's some industrial wireless customers that really didn't pick up so well. Some of the impact of the Thailand flood, the supply side actually impacts this business more so, than any other business. So there was some of that there, but I would say in general, Harsh, it's just across the board weakness.

Got it. Thanks, Mohan.

Your next question comes from the line of Rick Schafer with Oppenheimer Funds.

Hi, this is Jason Rechel calling in for Rick. I guess, just first to circle back to today's acquisition. I think you talked about some of the IP just doubling your opportunity in wireless sensing over the next few years. Could you maybe just provide a little bit more color on that? And perhaps, quantify the growth and your opportunity that you expect to see?

Yes, so essentially what Cycleo has, is they have patented IP that enables long range wireless communication at very low power. So our wireless platform is basically a sub 1 gigahertz ultra low power wireless platform, and with this IP, we just get more range. And with more range, it opens up a lot of opportunities for our customers to do things like, for example, as I mentioned in the script there, that they can remove the need for repeaters which are expensive infrastructure components. So it's a great fit for us.

We've been targeting the metering market and asset management markets, and the markets that needs that kind of technology. And so, we believe with their IP platform, we can basically open up the market a little bit more, probably opens up to about a $50 million to $100 million[ SAM] for us now, which we didn't think we had before. So I think the integration is going to be straightforward, and really makes Semtech the undisputed leader in long range ultra low power RF platforms for industrial applications, which is quite exciting for us.

Great, thanks. That's really helpful. And then, I guess just moving to handset. Could you maybe talk about who your biggest customer in handset is now? And as RIM kind of continues to have its own difficulties, is some of that headwind starting to ease a bit?

Yes, I think the answer is yes, but I think our smartphone customers are fairly broad. We're -- obviously, we're a big supplier to Samsung, to LG, to some of the other big handheld smartphone manufacturers, obviously including RIM. And RIM has been challenging for us, but I think things are bottoming out there, and I think we'll improve.

Okay. And then kind of going tangentially over to tablets. Can we maybe talk about how many tablets you are in today? And as you -- whether it's in those tablets or designs that you're targeting, could you maybe quantify, maybe your average dollar content in tablets today?

We're in most of the tablets. It does vary, like smartphones, the content varies from tablet to tablet, depending on how many interfaces, the different type of architectures that those customers use, content can be anything from $0.10 to up to $1.00, I think.

Okay. That's it for me. Thank you.

Your next question comes from the line of Jim Schneider with Goldman Sachs.

Thanks for taking my question. This is Gabriela Borges on behalf of Jim. Just to follow-up on some of the earlier coms questions, can you provide any color under expectations for overall 40 gig market growth for the year, off of the Semtech's growth was in this market?

Well, the growth is -- we, our expectation is the growth will be quite good, in terms of the number of units, number of ports. Both 40 gig and 100 gig in our opinion, are still emerging markets. And 40 gig is now getting to the cost point, where replacing 10 gig, four or five 10 gig line cards with a 40 gig line card makes a lot more sense. And so, we are starting to see more deployment of 40 gig. And I think that trend is going to continue. So, and our customers tell us that their 40 gig deployments are accelerating quite nicely.

So 100 gig is obviously, very early days. But also, we're starting to see the 100 gig, certainly line the side applications starting to be deployed now quite rapidly also. And we have a pretty good share in both the 40 gig and 100 gig long haul applications. Our competition is largely internal. So some of the customers actually who buy our products also have their own solutions, internal solutions. But I think we'll keep bringing new platforms to them, and hopefully, they will move some of their share over to us.

That's very helpful, thank you. And then as a follow-up, if I may. You mentioned gross margin up slightly this quarter on mix. How should we think about gross margin going through the year, as volumes recover, but then perhaps mix shifts back towards the consumer computing segments? Thanks.

Yes, so, this is Emeka. Our gross margin stories are essentially very simple. It's just a function of the mix of revenues. As we see the higher mix of our industrial and communications, that is good for our gross margins. And the higher mix of consumer and computing is not so good. The other key driver of our gross margin is just the manufacturing volumes. So what we've said, is that our -- at a quarterly revenue run rate of $125 million to $130 million, we should be able to operate at the high end of our 55% to 60% target.

Okay. Thank you very much.

Your next question comes from the line of Li-Wen Zhang with Pacific Crest.

Hi, thank you for taking my question. First one, just to follow-up on Mohan's comments on the unit growth for 40 giga. And even though you had the -- still the -- saw supply in the emerging market, but how -- what do you see the ASP pressure and the erosion for that product line?

Yes. No, the ASP pressure is there. And it's really driven by the customers wanting to drive more volume. So that's clearly, something that we are working with them on. We are bringing the ASPs down. There's plenty of room on the cost side as well though, so I think that we can hold the margin profile for those areas. And it's in our interest, if the volumes go up significantly because of more deployments of 40 gig components, where we're really the only one out there that has qualified products in the field today, that have been through all the different trials and et cetera. We feel good about that, so we don't want to lose any of our share on the 40 gig line side.

Okay, thank you. And also, given the high margin profile Gennum will provide upon the deal close, is it fair to assume that Semtech will more aggressively play in other markets, like for the protection or power product line?

Well, I think we will continue to play aggressively to maintain our position in the consumer computing space, where we think that we have differentiated product. We do that now. It's not really an issue of when we acquire Gennum. Gennum also has some good position in some consumer spaces. And some of the -- what I'll call kind of data com enterprise computing spaces, where maybe they're not -- they haven't been as aggressive, because they are trying to maintain the higher gross margin. I think we will take a look at those areas, and determine if we can accelerate the growth.

Okay, thank you. That's all I have.

Your next question comes from the line of Cody Acree with WFG Investments.

Thanks. Thanks for taking the question. Mohan, you just mentioned, not a lot of competition outside of the internal in the 40 and 100 gig. Can you just give us an estimate right now, on what that's -- what your market share is versus the internal, and how you see that shifting?

Well, we think we have about 70% share. It's difficult to quantify exactly, but we think we have about that much. Hasn't changed a lot, actually since we acquired Sierra Monolithics. There are certain companies out there, that have their own internal, kind of more vertically integrated. I think it's a mistake in the long run. I think they will start to look at how they can rationalize some of their expenses there, and look for off the shelf components. But the fact of the matter is, there are some companies that have their own solutions. And it's difficult for us to penetrate them, because it's more of a political or emotional decision, but all the other guys who use off the shelf components, use our products.

But that's not been shifting noticeably in the recent quarters, is that correct?

That's correct.

Okay. And then on the coms order rates, do you think this is more Semtech design win specific, or maybe even your customer design specific, or is this more indicative of maybe some of the service providers starting to release some CapEx that was delayed through 2011?

I think it's a little bit of both, Cody. I think with some CapEx getting more deployed, some regions doing a little bit better. And then I think it is also Semtech-specific, in the sense that for example, our 100 gig coherent design wins, nobody else has the kind of technology we have. And so, I think we are quite confident that as those things roll out, that we'll get a nice return.

And last thing for me. On those 100 gig design wins, you talked about the Tier 1s, that might be impactful later this year. Can you give us some color on size and timing of those, and do you expect those to layer in the second half, or are those really more of a '13 event?

No, we should see some this year. I don't know exactly how much. I can't quantify that now. But I think as these systems roll out, one of the things you find very quickly is that they are not just building one platform. They will build one platform, and then they will roll it out into many different systems. And as those systems start to get adopted in the marketplace, those same customers will come back for more applications and different usage -- uses of the devices.

And I'm sorry, actually one last thing. On the booking side, you said, obviously, things were coming in a bit stronger. Are those primarily for the current quarter delivery? Are you seeing some of those actually stretch out specifically, given that their coms orders are improving?

It's a little bit of both. Our lead times in com are quite long. And so, I would caution you about that. I mean, we, some of our other lead times are very short. So where we see the extended bookings, a little bit more visibility are on the areas where we do have long lead times, which is what the com area is. So I think in the other areas though, I would say that bookings in general is still relatively weak.

All right. Great. Thanks.

Okay.

Your next question comes from the line of Craig Ellis with Caris & Company.

Thanks for taking the follow-up. Mohan, I was hoping to get that you could take a [step] to a slightly higher level. It's helpful to get your perspective on the growth you see in the near-term with your product groups. But as you look out over the course of the full fiscal year, can you talk about where you got more confidence in growth, and where you might from a product group standpoint, see either headwinds or challenges to growth in those lines of businesses?

So essentially today, we have [full] product lines in protection. Our protection business just came off yet another record revenue year. And I still believe the trends in that business are going to enable that product line to be a very, very successful. And obviously, if the markets holdup, I would expect another record year or very close to that for protection business. Our advanced communication business as I mentioned, we have a lot of secular things going on. And we have some unique platforms, both on the 40 gig side, the 100 gig side, the timing sync side. And we started to explore and get products out in the PMD side, also in the 40 gig and 100 gig areas, things like line -- drivers.

We're also looking at, obviously, the microwave platforms which should start to get designed in here, over the next couple of quarters. And we should start to see some revenue, maybe in the back end of the year. So I think our advanced com business also is likely, will have another record year for us. On the wireless and sensing side, longer time to revenue, little bit more challenging, but we have had very good design wins. And I think now with the addition of Cycleo, now my expectations are getting greater for that business. So I think that could be a year of -- really trying to find, and identify where we're going to get more growth from, but I think that should start to see growth.

And then our power management and high rel business, as you know has been kind of declining for the last couple years here. We've started to come out with more exciting products. And I think we have some momentum with the new General Manager, who's really made some -- making a difference. And I'm confident that that business will start to do well as well.

That's helpful. And for you, Emeka, just a derivative about that. It sounds like there's a strong growth profile, and at least half the business is more so, on a revenue mix basis. What does that mean for gross margins, relative to getting back up to the high end of the target model range, which is where the business was just a few quarters ago?

I think, as I said before, as we continue to see the growth from communications and the wireless and sensing business begin to really grow very nicely again, that obviously is going to be very good for gross margin. I think the one key driver that really helps us get back to the high end of the target range, was going to be seen -- over (inaudible) in top line growth, hence driving much higher volumes. If when we start to see that, like I said before, at a quarterly revenue run rate of $125 million to $130 million, I would expect to us (inaudible) get back to the high end of the 55% to 60% gross margin.

Let me also add to that, Craig. The power management gross margins, as we start to get growth there, I think we'll continue to improve, and that will help us overall. I think also, some of the new com platforms like microwave platforms, I think will drive higher gross margins also for us. We still have areas in -- of yield improvement, we can improve in, on in the Company, and I think that will drive also improved gross margin for us, some manufacturing inefficiencies also. And then, as I mentioned some of these new PMD devices, some of the optical devices that we're looking at, I think from a product mix standpoint, we should start to see some more higher end gross margin products come out.

Thanks.

Your next question comes from the line of Steve Smigie with Raymond James.

Great. Thanks for the follow-up. First question is you are talking of your [products], in terms of new categories now. Did you provide historical break out for them? I'm sorry, if I missed that somewhere.

So for the old product group, do you want us to know what the quarterly growth was?

Well, I just want to know if there's a historical --

We can provide that for you, Steve, if you want to just get with Linda after the call.

Okay. Great. And then, I just -- I guess with regard to July of 2011, you had about $130 million in revenue as your peak revenue number. How tough is it going to be for you to get back there? And is that a fair peak, or is there exuberance in demand that led to that number being higher than it really should be?

Well, that was I think, the quarter, probably first half of last year, right, tsunami. So there was some pull in of inventory into the first half. But to be honest with you, I think Q3 is typically our strongest quarter. So my anticipation is this quarter -- this year, we should be able to get back to that, at some point.

Okay. Great. Thank you very much.

Okay.

Your next question comes from the line of Harsh Kumar with Morgan Keegan.

Hi, just wanted to clarify something with Cycleo. Mohan, when you said you eliminate the repeaters, are you -- is the smart metering data then going on wireless infrastructure, or how is it going out?

Yes. No, it's still wireless. So today, the wireless infrastructure that's being deployed, is from transmitter to repeater to receiver. And all I'm saying is that the infrastructure deployments can basically remove some of those repeaters in their infrastructure, because the range of wireless transmission is longer. So that is really the value proposition of having long range low power wireless communication.

And do you, Mohan, expect to have products out from Cycleo? Or will this be technology that is embedded into some of your own stuff?

Yes, technology that is embedded into our products, and we should have products out this year.

Great, thanks.

Your next question comes from the line of Li-Wen Zhang with Pacific Crest.

Thanks, again. Can you update your microwave products? Thanks.

Yes. So the microwave platform, the first silicon came out. We sampled it, our customers like it, they've asked us to go back and make some modifications through -- to the next silicon. We've made those modifications. We expect to have the product out, I think over the next quarter here. And then my expectation is we'll start to get some design wins.

Okay, got it. Thank you.

You have no further questions at this time.

Okay, let me summarize by saying that fiscal year 2012 was another record breaking year for Semtech. Our annual revenues, our non-GAAP operating profit, net income, and earnings per share were all Company records. Furthermore, the proposed acquisition of Gennum Corporation would represent the largest acquisition in Semtech's history. Both Gennum and Cycleo provide opportunities to add to our arsenal of highly differentiated value added technology solutions.

During the year, we continued to experience solid design win traction, which indicates customer demand for our innovative platforms. We also returned value to shareholders in the form of stock repurchases. And during fiscal year 2012, we bought back a total of 2.3 million shares of Semtech stock. With that, I would like to thank you all for your continued support of Semtech, and look forward to updating you all next quarter. Thank you.

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