Semtech Corp (SMTC) 2015 Q4 法說會逐字稿

Good afternoon. My name is Lisa and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation's Q4 FY15 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)

Sandy Harrison, Director of Business, Finance and Investor Relations, sir, you may begin your conference.

Thank you, Lisa. Welcome to Semtech's conference call to discuss our financial results for the fourth quarter and FY15 ended January 25, 2015. I'm Sandy Harrison, Director of Business, Finance and 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.

Our press release announcing our unaudited results for the quarter 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 these statements.

For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor Statement included in today's press release, as well as other risk factors section of our most recent periodic reports on Form 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 in 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.

With that, I will now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu. Emeka?

Thank you, Sandy. Good afternoon, everyone. Before I proceed with the results of operations for Q4 of FY15, I would like to provide you with a summary of key strategic events that have recently occurred. First, we implemented a new enterprise resource planning system based on the SAP platform. Second, we have made a number of strategic investments, including the acquisition announced earlier today of Triune Systems.

Third, we have made a decision to further review the investments in the businesses associated with our Sierra Monolithics acquisition made in 2009. At the beginning of Q1 of FY16, we successfully transitioned to a new enterprise resource planning system based on the SAP platform. We have now been conducting our operations in SAP for the past five weeks and so far there has been no major technical issue.

Over the past two and a half years, we have invested approximately $28 million in the project and expect to derive several benefits from the new system. Some of these benefits include productivity enhancements driving operating leverage as we scale the company, enhancing our interactions with the customers and suppliers and supporting our strategic activities.

As a result of this transition, in Q1 of FY16, we expect to incur approximately $3 million for depreciation and initial support of the new ERP system, which will then decline to approximately $2 million in Q2 and $1 million thereafter per quarter. In the past two months, we have made a number of strategic acquisitions. In January 2015, we acquired the assets of EnVerv Incorporated for $5 million, which we funded by drawing on our existing line of credit.

These assets provide us with innovative Long-Range Powerline Communications technology, which complements our current long-range wireless technology. Also as announced today, we obtained wireless charging technology with the acquisition of Triune Systems for a guaranteed cash payment of $45 million, of which $35 million was paid at closing and $10 million is due in six months, with the potential for an earn-out payment of up to $86 million upon the achievement of certain (inaudible) and operating milestones.

We have drawn on our existing credit line to fund the Triune Systems acquisition. We expect these acquisitions to add approximately $2 million to our quarterly operating expenses on a non-GAAP basis. And even though revenue will be back-end loaded, we expect the acquisitions to be $0.05 accretive to our FY16 non-GAAP earnings. In FY17, we expect these acquisitions to add approximately $0.20 to our non-GAAP earnings.

Finally, in Q4, after reviewing our strategic priorities, we decided to divest or shut down our defense and microwave communications infrastructure business due to concerns tied to revenue. This business was a part of the Sierra Monolithics acquisition made in 2009 and while we believe there is a good long-term opportunity, we also believe it is a relatively low priority for us today. In addition to continued weakness in the long-haul optical communication business, the company in the fourth quarter of FY15 sent end of life notifications to its customers for those products.

The Company also terminated our product developments in this business. As a result of these actions, in Q4 of FY15, the Company recorded special charges of $23.3 million for restructuring and impairment activities. These special charges include one-time non-cash items of $21.1 million for the impairment of licenses, fixed assets, and other intangible assets. The special charges also include $2.2 million of one-time cash items consisting of $300,000 in service charges, and $1.9 million in purchase commitments.

We have now completely written off all the goodwill and intangible assets associated with the 2009 acquisition of Sierra Monolithics. On a non-GAAP basis, we expect these actions to save approximately $1.5 million in quarterly operating expenses.

Now, moving on to Q4 FY15 results. Semtech's net sales for Q4 were $130.4 million, slightly above the midpoint of our guidance range. This represented a sequential decline of 12% from the prior quarter and an increase of 3% from the fourth quarter of FY14.

The quarterly decline in net sales was primarily attributable to the seasonal softness we typically see in our fiscal Q4, along with additional weakness from our Korean handset customers and lower China wireless infrastructure spending. Net sales for the full FY15 were $557.9 million, down approximately 6% from FY14. The decrease was entirely attributable to the declines from our long-haul optical communications and microwave products.

Excluding the declines in our long-haul optical and microwave businesses, net sales would have actually increased 10%, showing the underlying strength of Semtech's core businesses. In Q4 of FY15, 72% of shipments were derived from customers in Asia, 17% from North America and 11% from Europe. Sales to distribution increased as a percentage of overall net sales and represented approximately 57% of total net sales while direct sales represented approximately 43% of total sales. Bookings improved throughout the fourth quarter. However, our book-to-bill was slightly below one.

Turns bookings accounted for 53% of shipments during the quarter. Gross margin on a GAAP basis for Q4 of FY15 was 56.1%, down from 60% last quarter due to lower revenues from our Signal Integrity Product group and the special charges mentioned earlier. In Q1 of FY16, we expect gross margin to be between 59.2% and 59.7%. Operating expense on a GAAP basis was $86.9 million for the fourth quarter of FY15.

The significant sequential increase over the $66.5 million in Q3 was driven by the special charges mentioned earlier. In Q1 of FY16, we expect our operating expenses on a GAAP basis to decline significantly due to the one-time special charges recorded in Q4. These savings would be partially offset by the customary higher payroll related expenses associated with the new fiscal year, additional expenses are associated with our recent acquisitions and the SAP implementation.

We recorded an expense of $918,000 in interest and other in Q4 FY15 compared to an expense of $1.2 million recorded in Q3. The decrease in the expense amount was driven primarily by higher foreign exchange gains in the fourth quarter driven by the stronger US dollar against the Canadian dollar. We expect to record an interest and other expense of approximately $1.8 million in Q1 of FY16. In Q4 of FY15, we recorded a GAAP tax provision of 5.2%. This compares to a GAAP tax provision of 18% in Q3.

We estimate our GAAP tax for FY16 to be between 17% and 19%, reflecting a higher mix of income from higher tax jurisdictions. On a non-GAAP basis, excluding the impact of stock-based compensation expense, amortization of acquired intangibles and acquisition impairment on restructuring of related expenses, gross margin for the fourth quarter of FY15 was 60.1%, down 20 basis points from the prior quarter. The lower gross margin was the result of lower revenue from our Signal Integrity Product group.

We expect non-GAAP gross margins in Q1 of FY16 to be between 60% and 60.4%. In Q4 of FY15, operating expenses on a non-GAAP basis were down 3% to $51.3 million when compared to the prior quarter, due to lower compensation expenses from lower payouts on the annual bonus programs and the holiday shutdown. In Q1 of FY16, we expect operating expenses to increase approximately 7%, 11% sequentially due to the higher payroll expenses associated with the new fiscal year, additional expenses associated with our recent acquisitions and our ERP implementation.

In FY16, we expect our operating expenses on a non-GAAP basis to average between $54 million and $56 million per quarter. In Q4, our non-GAAP effective tax rate was 11.9% and approximately 13.7% for FY15. The benefit from the reinstatement of the federal R&D tax credit in Q4 of FY15 was somewhat offset by higher income in higher tax jurisdictions. We expect our FY16 non-GAAP tax rate to be between 14% and 16%.

In FY15, our cash flow from operations decreased 10% from FY14, mostly due to activities in support of our transition to a new ERP system. At the end of Q4, we had approximately $230 million of cash and investments, down from $233 million at the end of Q3 FY15. During the quarter, we made $3.5 million in strategic investments in startup companies. We paid approximately $5 million on our debt, but also drew $5 million from our line of credit for the EnVerv asset purchase, leaving the balance on our debt sequentially flat, at approximately $253 million.

We did not repurchase stock during the quarter and the outstanding stock repurchase authorization is $50 million. The primary use of cash continues to be to pay down our debt, repurchase our shares and make strategic investments. The company spent approximately $6.3 million on property, plant, and equipment in the fourth quarter. In Q1 of FY16, we expect to spend approximately $6 million, primarily for test equipment and manufacturing capacity. Depreciation for Q4 was approximately $5.4 million.

In Q1 of FY16, we expect depreciation to increase to approximately $6 million, driven primarily by the SAP implementation. In Q4 of FY15, accounts receivable decreased 12% sequentially and days of sales outstanding increased 7 days to 52 days as a result of the lower sales in the quarter. Net inventory in dollar terms increased 22% sequentially in Q4 and days of inventory went from 88 days in Q3 to 107 days in Q4. Due to the build-ahead in preparation for the transition to a new ERP system in Q1 of 2016, we expect to consume a majority of the profit built during Q1.

In summary, fiscal 2015 was a successful year despite the challenges we faced from the steep decline in our long-haul optical communication and microwave business. Excluding the revenue from the long-haul optical and microwave business, our other businesses actually grew 10% year over year. Gross margins remained stable at the high end of our target range and we managed operating expenses well.

In addition, we added critical technology competencies, implemented a new ERP system to drive our operations for the next several decades and we bought back approximately 3% of our stock. In FY16, we expect that our diversified business model, new design wins, new acquisitions, together with stable gross margins and operating expense discipline should allow us to grow revenue, earnings and operating cash over FY15.

I will now hand the call over to Mohan.

Thank you, Emeka. Good afternoon, everyone. I will make a few brief comments on the implementation of our enterprise resource planning system, discuss our Q4 FY15 performance by end market, and by product group, discuss our FY15 performance, and then provide our outlook for Q1 of FY16. As Emeka stated, we are pleased to report that we went live with our new SAP enterprise resource planning system at the beginning of FY16.

The system is up and running and operating as we had expected and we have successfully transitioned away from over 25 years of legacy systems and databases. This has been an approximately two-year, $28 million, resource-intensive journey for Semtech, which was absolutely necessary for us to scale in the future. We believe that a robust and scalable ERP platform is a critical component for our future growth, as it enables us to more rapidly integrate acquisitions into Semtech. Additionally, we believe the automation efficiencies and capabilities we are expecting to gain from SAP will help us to improve our productivity, execution, and our overall performance in the future.

Now, let me comment on our Q4 FY15 performance. In Q4 of FY15, we achieved net revenue of $130.4 million, which was a decline of 12% from Q3 of FY15 and up approximately 3% from Q4 of FY14. We experienced increased demand from the industrial end market, while demand from the enterprise computing, high-end consumer, and communications end markets all decreased from the prior quarter.

For Q4 FY15, we posted non-GAAP gross margin of 60.1% and non-GAAP diluted earnings per share of $0.34 per share. In Q4 of FY15, net revenue from the industrial end market increased from the prior quarter and represented 30% of total revenues. The high-end consumer market decreased from the prior quarter and represented 29% of total revenues. Approximately 19% of the high-end consumer revenue was attributable to hand-held devices and approximately 10% was attributable to other consumer systems.

Net revenue from the enterprise computing end market decreased from the prior quarter and represented 22% of net revenues. Finally, net revenue from the communications end market decreased and represented approximately 19% of Semtech's total revenues.

I will now discuss the performance of each of our product groups. Q4 of FY15 was a challenging quarter for our Protection, Power and High-Reliability Product group, which declined 15% sequentially and represented 45% of total net revenues. While we experienced growth in the industrial end market, weakness in the high-end consumer market contributed mostly to the decline. Our Protection business declined from the prior quarter, driven by lower demand from our Korean smartphone customers. This was offset slightly by solid growth from our China smartphone customers. Semtech's increasing hand-held presence in Asia with the Chinese smartphone manufacturers, such as Huawei, Lenovo and Xiaomi, should be a major contributor to our hand-held Protection business in FY16.

Our Protection business continues to introduce new products that address a broadening array of applications. We recently introduced our RClamp0531TQ, an ultra low capacitance device targeted at high-speed data lines, including automotive applications that require AEC-Q100 qualification. Additionally, we expanded our USB 3.0 protection platform with the RClamp3346P, a new 6-line TVS platform to protect computing and mobile devices.

Our solution is ideally suited to protect the most advanced process geometries being used in the newest generation of micro processors. Finally, we also just announced our uClamp3601P, which is a 33-volt, high-performance protection platform for protecting industrial sensors. This platform is ideal for safeguarding proximity sensors that are often employed in harsh, noisy, industrial environments.

We believe the continued growth in the number of ports requiring protection, the increase in the speeds of these ports and the increasing sensitivity of advanced lithography devices to ESD events provides growth opportunities for Semtech's protection platforms. While our Protection business continues to execute very well, our general manager, Jeff Pohlman, who has been with Semtech for over 26 years and has been one of the key leaders throughout the growth of the business, has announced his retirement from Semtech for personal reasons.

Jeff will retire at the end of March to spend more time with his family and then help Semtech as needed in a consulting role. We are very sad to see Jeff retire and wish him the very best for the future. We are also delighted to announce that his successor, who has been personally mentored by Jeff for over 16 years, Mark Costello, will be taking over as the new vice president and general manager for the Protection products group. Jeff has been grooming Mark for this day and we are very confident in his ability to lead the business in the future.

With this change, we will be reporting on our Protection Products group as a standalone product group and our Power and High-Rel Product group as a standalone product group in the future. In Q1 of FY16, we expect our Protection business to increase slightly, as we expect a modest improvement in our Korean smartphone business. Our Power and High-Rel business grew 8% sequentially in Q4 of FY15.

Demand for our Power Management business increased across all our end markets, with the industrial end market being particularly strong, driven by automotive applications. We are starting to see the emergence of several new power product platforms that have been in development over the last 24 months that will enable Semtech to reemerge as a power management leader in the industry. In Q4, we announced the expansion of our digitally controlled, high efficiency dual 2-amp buck regulator platform, targeted at industrial and communications applications.

We also announced the expansion of our miniature high performance load switch platforms targeted at consumer applications. Our Power and High-Rel Product group continues to focus on developing and introducing innovative new products. In FY15, new product introductions increased by over 20% from FY14 and were the highest achieved in the last three years and we expect the new product momentum to increase in FY16.

This afternoon, we announced the acquisition of Triune systems. Triune is an analog chip start-up, founded in 2007 based in Plano, Texas that has several new platforms in the multi-standard wireless charging market and the isolated switch market. Triune's multi-mode wireless charging platforms offer a range of different power levels from 0.1 watt up to 20 watts and are a good fit for the emerging low power wearable market, as well as the high power industrial and automotive segments of the market, where high power, high efficiency and flexible solutions are required.

Triune has solid design win momentum in all three segments and is also sampling a 40-watt and 100-watt multi-mode wireless charging platform targeted at the industrial and computing markets. The use of wireless charging is expected to increase significantly over the next five years, as larger feature-rich and power-hungry mobile devices will need to be charged several times a day in different locations at different times without the need for cablesand we believe Triune is well positioned to benefit from this market growth.

In addition to its portfolio of wireless charging platforms, Triune Systems has also developed an isolated switch platform that is targeted at home automation and other industrial markets. This platform has been designed to replace larger, less efficient solid state and mechanical relays. We believe that the combination of Triune's new wireless charging and switching platforms and Semtech's new power management platforms will be a catalyst for several years of solid revenue growth from our Power and High-Rel Product group.

The Triune Systems business will be integrated into Semtech's Power and High-Rel Product group. And Ross Teggatz, the CEO of Triune Systems, will head up Semtech's Power and High-Rel Product group, reporting directly to me. Ross has over 25 years of analog, mixed signal and power management expertise and we are delighted to have him lead our Power and High-Rel business. In Q1 of FY16, we expect revenues from our Power and High-Rel Product group to decrease due to seasonality and anticipate softness from the alternative energy segment.

Moving onto our Signal Integrity Product group. In Q4 FY15, net revenues decreased 9% sequentially and represented 40% of total revenues. Modest strength in our PON business was offset by lower sales from the China wireless infrastructure build-out.

Our Signal Integrity Product group was particularly active with new product releases this quarter, setting a new quarterly record. We introduced a broad range of new products that include CDRs, laser drivers, and physical media devices. These products operate across a broad range of bandwidths, from 2.5-gig to 25-gig to 100-gig, to address the increasing demand for lower power, high-performance, optical module solutions.

Our newest quad 25-gig CDR solutions for 100 gigabits per second data center and datacom applications are doing very well in both CFP4 and QSFP28, 100 gigabits per second optical module designs. And our first generation 100 gigabit per second CDR solutions for CFP2 are also delivering excellent growth. In addition to our investments in high performance CDR and PMD platforms, we have made several strategic investments in the area of silicon photonics that should start to generate revenue in early FY17.

We believe our leadership position in the data center, PON and wireless infrastructure markets are the result of our focus on introducing new products that continue to deliver the highest performance, highest integration, and lowest power in the industry and we are fully committed to being a long-term strategic player in the enterprise computing and datacom segments. For Q1 of FY16, we expect revenue from our Signal Integrity Product group to increase as the PON market remains strong and as we start to see an increase in our wireless infrastructure business.

Turning to our Wireless Sensing and Timing Product group, revenues in Q4 decreased 13% sequentially and represented 15% of total revenues. Excluding revenues from our one-time 3D touch contract settlement from Q3 of FY15, our Wireless Sensing and Timing business increased 6% sequentially. Revenue from the industrial and communications end markets both increased from the prior quarter.

In our Wireless and Sensing business, we continue to enjoy tremendous momentum, with our LoRa wireless platform, as customers and partners continue to evaluate and conduct trials using our solution. During the quarter, our LoRa solution was selected by many new global customers for their long-range, low-power networks.

The LoRa ecosystem also made great strides this quarter, as the formation of the LoRa alliance was announced at the annual Consumer Electronics Show. LoRa alliance was formed by industry IoT leaders that are looking to standardize IoT, low-power, wide-area networks, creating one of the largest and most powerful consolidated efforts to enable the Internet of Things. The prospective list of LoRa alliance members include such names as IBM, Cisco, MultiTech, Kerlink, and Actility. In addition, telecom service providers such as KPN in the Netherlands and FastNet in South Africa are intending to deploy public networks based on LoRa for M2M and Internet of Things connectivity this fiscal year.

The formation of the LoRa alliance is further evidence that the momentum for our unique low-power, long-range wireless solution continues to grow. In Q4, we also completed the acquisition of EnVerv. This business is now integrated into our Wireless and Sensing business and will be referred to as our smart grid business.

This acquisition provided Semtech with Long-Range Powerline Communications, or PLC technology, along with smart grid energy management and industrial networking expertise. Combining the EnVerv PLC technology with our long-range, low-power LoRa wireless platforms will enable Semtech to provide smart grid customers a solution that enables nearly 100% network coverage. The capability to offer both wired and wireless solutions in a single platform also enables customers to develop gateway devices that allow service providers to deliver telecom, home automation, and consumer services all on one platform.

We see this capability as an exciting extension of the Internet of Things and we have been pleased by the warm reception from strategic customers who have invested in PLC technology. We expect this business to supplement our LoRa efforts and begin to contribute to revenue later this year. Also in Q4, we continued to see momentum building for our proximity sensing platforms in both the tablet and smartphone segments.

While most of the revenue and design wins today are from the tablet segment, we are seeing increasing interest from other consumer applications such as wearables. For Q1 of FY16, we expect revenue from our Wireless Sensing and Timing Product group to increase modestly. In Q4, the total company distribution POS declined slightly from the prior quarter. Distributor inventory increased slightly by three days from 71 days in Q3 of FY15 to 74 days in Q4. This is within our 70 to 80 days channel inventory model.

Our distributor business remains very well balanced, with 48% of the total POS coming from consumer and enterprise computing end markets and 52% of total POS coming from industrial and communications end markets.

Moving on to new products and design wins, in Q4 of FY15, we released 26 new products. We also achieved 2,203 new design wins. Both of these were an improvement over the prior quarter levels.

Now let me comment on our FY15 performance. In FY15, revenue decreased 6% from FY14. FY15 was a challenging year for us, as we saw further deterioration in our long-haul optical business. We also saw Samsung's overall weakness impact our business and we saw Microsoft's decision to shut down Nokia's 3D touch smartphones essentially terminate our own 3D touch revenues in the short to medium term. Despite the decline in revenues, tight management of operating expenses enabled us to protect our earnings in a very challenging year for the company.

We also achieved some significant milestones in FY15, including achieving stable non-GAAP gross margins above 60%, 8,636 design wins, 85 new product releases, generated $106 million of cash from operations and continued the diversification of our portfolio. In addition, our Gennum Product group and our Wireless and Sensing Product groups achieved record revenues and our Gennum Product group released a record number of new products in the year.

We believe that with our new growth engines, diversified product portfolio, our balanced end markets, diverse customer base and balanced geographical exposure and our new capabilities from both EnVerv and Triune Systems, Semtech is very well positioned for revenue and earnings growth in FY16.

Now, let me discuss our outlook for the first quarter of 2016. Based on recent bookings trends and our backlog entering the quarter, we are currently estimating Q1 net revenue to be between $130 million and $136 million. To attain the mid-point of our guidance range, or approximately $133 million, we needed net turnss orders of approximately 52% at the beginning of Q1. We expect our Q1 GAAP earnings to be between $0.05 and $0.07 per diluted share and our Q1 non-GAAP earnings to be between $0.27 and $0.30 per diluted share.

I will now hand the call back to the operator and Sandy, Emeka, and I will be happy to answer any questions. Operator?

(Operator Instructions)

And your first question comes from the line of Craig Ellis from B. Riley.

Thank you for taking the question. My first question is on the impact of Triune to your fiscal first quarter. What are your assumptions on revenue and operating expense from that deal in the income statement?

Craig, the revenue assumptions for Q1 is not that much, probably in the range of about $0.5 million and operating expense is probably going to be about half of that. The Triune Systems, their numbers are not really that significant in the Q1 guidance.

Okay, and on the deal, the press release stated you expect modest accretion this year. Is that on a full-year basis or is that in reference to a particular quarter later in the year?

No, on a full-year basis. We do expect about $0.05 of earnings from this acquisition.

Okay, and then the second question I have is on operating expense. For the operating expense guidance that you gave for the quarter, does that incorporate the $1.5 million per quarter benefit that you're getting as you discontinue your SerDes initiatives?

Yes, Craig. Everything is incorporated and I think in my prepared remarks I said as we look ahead for the total of FY16, when everything is said and done, we would have averaged on a non-GAAP basis, operating expenses of $54 million to $56 million. However, as per the guidance, it starts off a little bit higher in Q1 and then it works its way down as we go through the rest of the year.

Okay. Thank you. Then the last one will be for Mohan and I'll make a two-parter here. Mohan, looking at the top line guidance for the first quarter, I think typically the business grossed closer to 5% or better and the mid-point looks like 2%. Why wouldn't we be closer to that mid-point? And then, three months ago I asked you about long-term growth in the portfolio and I think you said wireless sensing would be one of the bigger drivers for this year. Given the portfolio, is that still the case and if there are other key drivers, can you please highlight what those are?

First of all, in the Q1 guidance, obviously the Korean smartphone manufacturers, we have to put in some increase, but it's fairly modest and a lot depends on how well the new phones at Samsung and LG do. I think we've learned from the last couple of years and they have learned, that having very large expectations and building inventory and those type of things is the wrong way to manage through their expectations and so there's a little bit more modest expectation in that.

I think in the China infrastructure build, we're starting to see that pick up a little bit, but I think it's going to be more back-end loaded and more of a Q2 event. So that's really why the modest Q1 guidance. And then with regard to growth drivers, I think our LoRa wireless and our proximity sensing are still two of our fastest growth engines and they are going to continue to grow.

Although they are, especially the LoRa wireless, is more of an industrial wireless player, so it's going to take longer to generate revenue. Obviously, with the addition of Triune Systems, our expectation is that the wireless charging platform, both in the industrial and the automotive and some of the wearable applications will be a fast-growing new engine for us. And then of course we have the exposure to the 100-gig data center and base station side of things and PON side of things on the optical business.

One of the beauties, really, I think with the power management business now that we have some new growth engines within that, is that I think we should see also a little bit more growth from our power business this year because of the Triune acquisition and the pull-through of the other components, the power components around the wireless charging platform.

So we should see some growth there. I think also in protection, even though there's softness in the Korea side, we are seeing some good growth there from the China region. So that's encouraging. And then video surveillance is also another area where we're expecting good growth.

Thanks for the very detailed color, Mohan.

And your next question comes from the line of Rick Schafer from Oppenheimer.

Hi, thanks. A quick follow-up on Triune, maybe to ask it a different way, but can you give us an idea of the overall magnitude of revenues you expect to see this year from those guys? And maybe Emeka or Mohan, if you could walk us through how those blend into the model, the next -- looking forward the next two or three quarters through the year.

So I think the top line expectation that we would expect from both acquisitions that we've announced, the one in general and the one today, is that they should contribute to revenues in the range of $10 million to $20 million in this current fiscal year, even though we have said that we do expect it to be more back-end loaded.

But in terms of the model, we don't expect, these two businesses have very [nice] gross margins that are at or above the high end of our target range. The operating expenses definitely very reasonable. So we do not expect to see any change to the target models of 60% gross margins and making good progress towards our 25% to 30% operating margin on a non-GAAP basis.

Got it, thanks. And then Mohan, you mentioned the Microsoft Nokia 3D touch business. I know you said near to medium term, that's sort of stalled, but can you define or give us some more color on what near to medium term is? How soon could you start to see revs outside of that customer, if you want to call it that? How long before we see real revs there?

I think the challenge, Rick, is that we have to find now another customer that's willing to engage with us and our partners on the software side. And that, it may be faster, but I don't want to set expectations there based on history. We need one of the larger tier 1 smartphone manufacturers to really adopt the technology and then go with it in a big way.

It's not out of the question. Some of those -- the technology's actually being demonstrated at Mobile World Congress this week. I think there's a long path from showing the technology and implementing it in your smartphone. So I would say it's at least 12 months, Rick, maybe 24 months is probably more realistic.

Great. That's really helpful. Then my last question is, you mentioned the China branded phones being a source of strength. Can you give us a sense of what the dollar content is there for you guys versus, say it's your largest handset customer?

I think actually it's similar to what we have in the Korea phones. A lot depends on, is this is a high-end phone or a medium-end phone, probably between $0.50 and $0.70, Rick, something in that range.

Okay. Great. Thanks a lot, guys.

And your next question comes from the line of Steve Smigie from Raymond James.

Great. Thanks a lot, guys. I wanted to follow up on the comments on the ERP system. Again, you said that the cost for that would be declining throughout the course of the year. Again, that's included in your $54 million to $56 million OpEx guidance, is that correct?

Yes, that is correct.

Okay, great. And so you did not do buyback I think you said this quarter, but you still have $50 million authorized. Would that pick up again in the future or since you used some cash here on acquisitions, maybe take a pause on that for a little while?

Yes, no, we do expect to pick it up. The reason we weren't active in our stock during the past quarter was we were actively holding the negotiations for the acquisition of Triune Systems. So we chose not to participate in the market.

Okay. In terms of the -- it sounds like you're going back to four segments here, with protection and power and high-rel broken out. Are you going to provide historicals on the segments so we can get some sense of how you guys are now bucketing those segments?

Yes, Rick. We will do that.

Great. And just on the proximity sensors, I think you got a lot of traction on the laptop. You had been talking about the handsets and you mentioned it in your color. How quickly can that handset portion for the proximity sensors ramp?

Well, the tablets are ramping and the proximity sensing will ramp in smartphones now this year quite nicely. Actually, the only challenge is which smartphones are going to actually have the proximity sensor in them and which will not? Not all the phones will have it implemented. So we're just waiting to see which ones will have them implemented.

Okay. On the wireless charging, it sounds like you're going to do industrial and wearable, but didn't really sound like you were going to go after the handset market. Is that correct?

Well, the Triune technology actually, platforms are both transmitters and receivers. They can go on both ends. The portfolio also has a range of power options. So it's configurable from 0.1 watts all the way up to 20 watts and as I mentioned, has very high power capability as well. The option exists there for us to go after almost any segment.

I think it's more important for us, though, to focus on the segments where we believe cost and integration of the platform itself are not the major focus for the customers. So I think in automotive applications, industrial applications and wearables, it makes the most sense for the differentiators that we have. We'll learn more about it. Obviously, it's early days for us, as we've just closed the deal. But our focus is probably going to be industrial, automotive and wearables.

Okay, great. Thank you.

And your next question comes from the line of Gabriela Borges from Goldman Sachs.

Great. Thanks so much for taking the question. I think you mentioned $0.20 in non-GAAP EPS accretion for the out year. Maybe you could talk a little bit about the level of confidence in achieving that target and what the biggest swing factors would have to be for market adoption in the two acquisitions that you just announced in order to hit that target. Thanks.

Well, Gabriela, if I talk about the wireless charging side of it, our expectation is that there will be -- there are increasing power requirements as devices get bigger, bigger phones and bigger displays, people wanting to charge in multiple locations and the convenience of having a wireless charging capability versus having wires around there. So the market is expected to grow quite nicely over the next three to five years, both on the transmitter side and on the receiver side.

And our expectation is that with the multi-mode, dual-mode and tri- mode capabilities that Triune brings to the table, is that we have a very good opportunity to grow that business. As a result, our expectations are quite high on that side of things. On the EnVerv acquisition, I would say that it's a little bit longer term. It's more industrial.

The smart grid network doesn't ramp up so quickly. But it's very stable and obviously with our LoRa wireless play, we already have strategic customers who are interested in engaging on both the PLC side and the LoRa wireless side. Growth is expected, but probably a little bit further out. Emeka, do you want to comment on the --

I think like I mentioned before, these two businesses have very high gross margins, like I said, above the high end of our target range. And their operating expenses, I expected just like the rest of Semtech, to grow in a very reasonable manner. So as long as we get the top line growth that we expect to get, as Mohan did mention, we do expect a lot of the top line growth to drop to the bottom line.

Appreciate the color. As a follow-up, if I may, on the broader M&A strategy, in the context of the two announcements today, maybe you could give us an update on how you're thinking about tuck-in acquisitions versus larger deals and then as well, the potential of partnering with a larger company to accelerate the scale. Thanks very much.

All our options are open. We look at bringing in technology to the Company. Semtech has, over the last 10 years, really developed a very nice portfolio of differentiated analog technologies, and we'll continue to do that. And EnVerv and Triune are examples of that. We've obviously done a set of previous acquisitions that have also brought in new technologies.

The key thing for us on this side of things, on the tuck-ins, is looking at which markets are going to grow and what's our participation in those markets and how we can play in those markets. So that's why the Triune acquisition was a critical acquisition for us in my opinion, because it really did - it's going to help us really drive our power management portfolio into some fast-growing applications.

But equally, acquisitions like the Gennum acquisition or similar sized acquisitions, if they make strategic sense for us, then I think we will continue to look at them and build our analog franchise. As for the larger deals, one can't control those. Those are deals that have to come to us, but our Board has always been open to all strategic initiatives.

Appreciate all the color. Thanks again.

And your next question comes from the line of Liwen Zhang from Blaylock.

Thank you for taking my questions and congratulations for entering the wireless charging industry. I have couple questions on Triune Systems. How much revenue did the Company generate to the last year? And the next one is, does their wireless charging platform support older standards?

Their revenue last year was modest and I think, especially on the wireless charging side, really, I think it was in the $1 million kind of range, very, very small. Yes, their charging devices support all standards. They have a tri-mode platform that supports all standards.

That's one of the beauties of the Triune technology. It really has a very flexible and configurable platform. The key to this business is that these guys are power experts. They are really power management experts, and that complements well with Semtech's power management experts, and I think that's what's going to be our advantage in the marketplace.

Thank you. My next one is for the 3D touch, to clarify regarding your comments earlier, so that means that Microsoft and the Nokia has allowed Semtech to pursue other opportunities with other OEMs, right?

Well, yes. The situation with Microsoft and Nokia is that Nokia decided not to take their phone to marketplace. And so we have the opportunity to partner with our customers -- with our IP partners to try to bring that technology to marketplace. But we need a lead customer. Nokia was our lead customer. Now we're exploring with other opportunities. But I can't tell you that we have anybody today that's really lined up to bring that technology to market.

Thank you. Best of luck for that. That's all I have.

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

Thanks, guys. This is Richard in for Harsh. Congratulations on the acquisition. Just wanted to touch base on your Gennum product. Broadcast has been an area of strength lately. What do you see in that market, and what are some of the growth drivers there?

The Gennum business, which is part of our signal integrity product group, continues to do very well. As you mentioned, the video broadcast ultra high definition is starting to get some momentum. We also like the video surveillance, the high-definition video surveillance market, we think is going to continue to grow nicely and be a good growth engine for us. The majority of the growth today, at this point in time, is really being driven from data center, the PON market and the base station market.

Gennum business and products are very broad. We have a broad portfolio of 1 gig to 10 gig products for backplane, we have a portfolio of 1 gig to 25 gig PMD kind of devices that go into multiple different applications. And then our CDRs, which are best-in-class, are doing very well in all of the 100-gig modules. So good growth from the Gennum business. As I mentioned, they had a record year last year in FY15, and we're expecting another record year this year.

Great. Thanks for all that color. And then shifting focus to the protection business, I know you talked about many new opportunities there. Should we think about this more as a unit growth story in terms of smartphones and tablets, or are there other areas or applications to really accelerate growth here?

Well, it's really the other areas. Everybody knows about our presence in the smartphone space and how well we've done in the Korean smartphone manufacturers and across the board, actually, most of the smartphone manufacturers. The challenge of course, is that as some of those customers lose share or don't do so well, then we get impacted by that. So we have been trying to diversify our protection of the business somewhat and I think quite successfully.

We now have a little bit more China presence and then we also have, as I mentioned, we've announced several platforms that are really targeted at different segments of the marketplace. The automotive is a good growth market for us. We continue to do well in the computing space with USB 3.0 and then some of the other platforms, targets are more the industrial space.

So continue to diversify, but it's, in general, a portfolio that serves the broader market quite well, and we'll continue to play in the smartphone market and continue to bring very good new technology to the marketplace. But a lot depends on, of course, the success of the customers in that space.

Great. Thanks, guys, and congratulations, again.

Thank you.

There are no further questions in the queue at this time.

In closing, FY15 had its challenges and we saw our first sequential annual decline since FY10. However, we did not let this impact our strategic focus or investments in core analog mixed signal platforms that will enable us to drive growth in the future. We managed our operations with strict OpEx control and maintained our non-GAAP gross margin at the high end of our 55% to 60% target range and released many new exciting platforms.

Our focus for the coming year will be to integrate the recent acquisitions, drive revenue and earnings growth and continue to diversify our portfolio. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.