SYNA - NASDAQ

Good day, and thank you for standing by. Welcome to the Synaptics Third Quarter Fiscal Year 2023 Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Munjal Shah. Please go ahead.

Thanks, Sean. Good afternoon, and thank you for joining us today on Synaptics third quarter fiscal 2023 earnings call. My name is Munjal Shah and I'm the Head of Investor Relations. With me on today's call are Michael Hurlston, our President and CEO; and Dean Butler, our CFO. This call is also being broadcast live over the web can be accessed from the Investor Relations section of the company's website at synaptics.com. In addition to a supplemental slide presentation, we have also posted a copy of these prepared remarks on our Investor Relations website. In addition to the company's GAAP results, management will also provide supplementary results on a non-GAAP basis, which excludes share-based compensation, acquisition-related costs and certain other non-cash or recurring or non-recurring items. Please refer to the press release issued after the market close today for a detailed reconciliation of GAAP and non-GAAP results, which can be accessed from the Investor Relations section of the company's website at synaptics.com. Additionally, we would like to remind you that during the course of this conference call, Synaptics will make forward-looking statements. Forward-looking statements reward current expectations and projections relating to our financial conditions, results of operations, plans, objectives, future performance and business. Although, Synaptics beliefs are estimates and assumptions to be reasonable, they are subject to a number of risks and uncertainties beyond our control and may prove to be inaccurate. Synaptics cautions that actual results may differ materially from any future performance suggested in the company's forward-looking statements. We refer you to the company's current and periodic reports filed with the SEC including our most recent annual report on Form 10-K and quarterly report on Form 10-Q for important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Synaptics expressly disclaims any obligation to update this forward-looking information. I will now turn the call over to Michael.

Thanks, Munjal. I'd like to welcome everyone to today's call. Our fiscal third quarter revenue was slightly above the midpoint of our guidance range, a solid result against the challenging economic backdrop. We maintained strong gross margins, which ultimately drove EPS above the midpoint of our guidance. Let me start by highlighting how the recent macro events are impacting our business. We reported previously, we have been focused on reducing customer and distributor inventories in our consumer-facing businesses such as virtual reality and Wi-Fi. However, we have been surprised by the slower pace of inventory draw down. Sell through hasn’t returned to the degree we expected largely because our customers have further reduced their forecasts in response to weakening end demand. While we reduced shipments into the channel significantly from our peak levels, we have not seen a commensurate drawdown in inventory. Another unanticipated macro change was the deterioration in corporate confidence toward the end of the quarter. This led to reduced IT spend, impacting our enterprise facing businesses such as video interface and audio headsets. Given these dynamics, recovery will take longer than we initially forecast and we now anticipate that the inventory bleed will take us deep into calendar 2023. In response to these near-term demand challenges, we are working with customers, allowing them to align backlog to demand, in a concerted effort to reduce inventories to normalized levels. We have confidence in our product roadmap and continue to invest in our long-term opportunities, but until we get past this acute period, we are tightening our belt and are reducing spend by freezing hiring, decreasing outside services, and lowering all non-essential spending. The Board recognizes Synaptics’ fundamental market potential and has approved an increase in our share repurchase program, bringing our total available authorization to nearly $1 billion. We are confident in our ability to return to growth once the inventory digestion is behind us. Given the June quarter guide, which Dean will cover in detail, we can say unequivocally that the business is shipping between $75 million and $125 million below where it should, even factoring in the weaker demand profile. Given the structural improvements we have made over the last three years and the share taken in product areas such as automotive, Wi-Fi and enterprise telephony, there is no reason to believe that the current state persists beyond this inventory correction. There are bright spots in the business. Our automotive products continue to outperform, benefiting from the transition to TDDI. In addition, with a $4.3 billion IoT funnel, Synaptics continues to win new designs and expand its future market position at key OEMs like Amazon, Cisco, Samsung, Dell, Ford, BMW, Toyota, ADT, Verisure, and Direct TV. We expect to emerge from the current downturn in better shape, consolidating share positions and advancing technology in our franchise product areas. During the quarter, we stayed focused on executing our plans. We won new Wi-Fi designs and the activity level continued to increase throughout the quarter. We introduced our second Triple Combo device that doubles throughput for high-speed Wi-Fi connectivity and integrates LE Audio for multiple concurrent BT 5.3 audio streams. The solution is ideal for intense streaming applications, advanced automotive infotainment systems, and high-end multimedia systems. Additionally, we have a new mid-range, cost-effective Wi-Fi 6E product that will be sampling to customers in the summer. While our business has taken a step back as we bleed off inventory, we still believe that we are on track to have a $1 billion business in three to five years. In fact, our Wi-Fi opportunity funnel has grown more than 30% year-over-year. We had several new customer product ramps this quarter, Unify and NEC for our enterprise telephony products, Razer and Jabra for new gaming headsets and speakerphones, and Lexus and Toyota for automotive TDDI solutions, among others. We are also expanding our product offerings at ADT with the integration of our SmartVoice glass break detection technology in security systems. While we are winning new sockets in our IoT portfolio, we also continue to cross-sell, increasing content in existing platforms such as operator set top boxes and enterprise telephony. Another bright spot for the portfolio was our mobile business. Revenue was ahead of expectations due to higher demand from China with customers like Oppo seeing stronger than expected product ramps. Outside of China, we are working on a new product launch for high-end touch controllers with a customer in Korea. Overall, our market position is strong in high-end flexible OLED screens, and we expect to see an increasing TAM as the technology moves down into higher volume tiers. To conclude, the near-term is challenging, but our secular opportunities are unchanged. The number of connected devices is expected to significantly increase over the next few years, driving our Wireless business and keeping us on track to our long-term goal. Infotainment content is growing in new cars which should lead to continued strength in our automotive business. We still believe in wireless workspaces and the opportunity to drive content gains in the docking station platform. We are in an extremely strong position with design wins, new product innovation, and portfolio expansion giving me confidence in our long-term growth prospects. Before I turn the call over to Dean for a review of our third quarter financial results and fourth quarter outlook, I should mention that we plan to update the investment community regarding our long-term strategy at an Investor Day later this Fall.

Thanks Michael, and good afternoon, everyone. I’ll start with a review of our financial results for the recently completed quarter and then provide our current outlook. Revenue for the March quarter was $327 million, above the mid-point of our guidance. March quarter revenue from IoT, PC, and Mobile were 71%, 16% and 13%, respectively. Year-over-year, consolidated March quarter revenue was down 31%, with declines across all three product areas of our portfolio. March quarter IoT product revenue was down a modest 3% sequentially, but down 23% on a year-over-year basis. The year-over-year decline is most pronounced in our Virtual Reality, Wireless, and Audio headsets products as these end markets continue to face macro headwinds. In PC, our March quarter revenue was down 6% sequentially and down 41% year-over-year as we continued to under-ship end demand. We expect the PC market to continue its bottoming process as customer inventories are being depleted. However, corporate enterprise IT spending likely remains muted due to macro pressures, complicating the recovery trajectory expected in the second half of the calendar year. Our March quarter Mobile product revenue was down 27% sequentially and was down 47% on a year-over-year basis. Mobile, however, was better than our prior expectations as customers in China experienced better than forecasted new product sales. We expect continued improvement in the June quarter, but remain cautious as end demand in this geography is still volatile. For the March quarter, our GAAP gross margin was 52.8%, which includes $23.7 million of intangible asset amortization and $900,000 of share-based compensation costs. March quarter non-GAAP gross margin continued to be strong at 60.3%, within our guidance range, but a bit lower than our expectation due to product mix. GAAP operating expenses in the March quarter were $138.1 million, which includes share-based compensation cost of $28.9 million, intangibles amortization of $8.5 million and amortization of prepaid development costs of $800,000. March quarter non-GAAP operating expenses continued to track as expected at $100 million, which was the mid-point of our guidance, and is up only 1% over the last four years despite being a larger and more diversified company. On a year-to-date basis, our GAAP tax rate was 43% and our non-GAAP tax rate was 17%. In the March quarter, we had GAAP net income of $10.4 million or GAAP net income of $0.26 per diluted share. Our non-GAAP net income for the March quarter was $57.3 million, a decrease of 15% from the prior quarter and a 51% decrease from the same quarter one year ago. Our non-GAAP EPS per diluted share of $1.89 was above the mid-point of our guidance range with higher net interest income during the quarter. Now turning to the balance sheet. We ended the quarter with $934 million of cash, cash equivalents, and short-term investments on hand, an increase of $75 million from the preceding quarter with cash flow from operations of $109 million. Partially offset by $26 million of cash used under our share repurchase program during the quarter. As Michael mentioned, the Board has approved an additional $500 million for share repurchases bringing our total plan to $2.3 billion with an available authorization of $977 million. We continue to be steadfast in our capital allocation philosophy. Our balance sheet is extremely healthy and we continue to allocate our cash usage between share repurchases, debt management, and potential tuck in acquisitions seeking the best long-term return for shareholders. Capital expenditures were $14 million and depreciation for the quarter was $7.6 million. Receivables at the end of March were $218 million and days of sales outstanding were 60 days, a reduction of five days from 65 last quarter. Days of inventory were 102, below 112 days last quarter and ending inventory of $148 million was down $30 million as our shipments out once again exceed our inbound new inventory purchases. We anticipate a further reduction in the June quarter given forecasts but are cautious of drawing inventory down too far once demand turns. Now, let me share the outlook for our June quarter. The macro situation continues to weigh on our customer’s forecasts, with their focus squarely on lowering inventory levels. Even in markets where demand has reached close to trough levels, recovery is taking longer than we originally anticipated. Given the need to further burn customer inventory, we expect revenue for the June quarter to be in the range of $210 million to $240 million, a sequential decline of approximately 31% at the mid-point. We expect our revenue mix from IoT, PC, and Mobile products in the June quarter to be approximately 57%, 19% and 24%, respectively. IoT based customers have experienced the most acute inventory position and as a result are disproportionally expected to decline in the quarter. Our most aggressive shipment holdbacks are occurring in these areas. We expect many of these customers deplete their inventory throughout the balance of the calendar year before returning to normal run rates. PC products are expected to decline in the June quarter but are seemingly close to trough levels, while our Mobile products likely increase during the June quarter as demand, plus new product launches, moves these customers back to modest growth. As a result of these mix dynamics, we expect GAAP gross margin for the June quarter to be in the range of 44% to 47%. And expect non-GAAP gross margin in the range of 56% to 58%, a decline from the previous quarter and are comparable to prior periods where our IoT products represented a lower mix. We expect GAAP operating expenses in the June quarter to be in the range of $138 million to $143 million, which includes intangibles amortization, and share-based compensation. We expect non-GAAP operating expense in the June quarter to be in the range of $98 million to $102 million, consistent with the March quarter. We are taking actions to maintain our expense discipline including freezing hiring, cutting outside services, and reducing discretionary spend. Synaptics has strong expense controls, having expanded our spending by only 1% over the past four years since 2019. We remain committed to our focused investment areas to drive long-term growth opportunities for the company and therefore continue our prudent stance despite lower revenue levels which we believe will ultimately prove to be temporary. As a result, June quarter GAAP net loss per basic share is expected to be in the range of $0.55 to $0.85 and non-GAAP net income per diluted share is anticipated to be in the range of $0.25 to $0.65 per share, on an estimated 40 million fully diluted shares. We expect non-GAAP net interest expense for the June quarter to be approximately $7 million. And finally, we expect our non-GAAP tax rate to remain unchanged in the range of 16 to 18%. This wraps up our prepared remarks. I’d like to now turn the call over to the operator to start the Q&A session. Operator?

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from Kevin Cassidy of Rosenblatt Securities. Your line is now open.

Thank you for taking my question. With your guidance at the midpoint being 57%, and that's your long-term target, should we assume that this is the mix you're going to be expecting going forward, meaning the IoT somewhere in the 55% of revenue range as we come out of this or is there some other factor about the 57% long-term gross margin target?

So good question, Kevin. I think you got it right, which is -- this is largely mix driven. We would not expect our mix between the three product areas to maintain at this level. We think the mix of IoT specifically, it goes back 70%, 75% once we return to normal run rates. So I think what you're experiencing now is sort of as the mix has shifted between the three product areas, you're seeing that impact on the margin line item.

Okay. Great. And just your internal inventory, even though it did come down, but it's elevated compared to history. Are you comfortable with this level or is that going to come down more? And maybe is that why you've shipped from inventory in -- I guess, are you cutting back on your suppliers with the wafers and just going to shift from inventory and work it down or maybe what is the optimal inventory level internally?

Yeah. Maybe just a couple of comments on that one. We do expect our internal inventory to continue to come down as we look forward into June and probably a little bit beyond that. Our typical goal on inventory would be to hold closer to 70 days versus sort of where we are now about 100 days. What we're doing is we're certainly cutting back on shipping into channel. So we've cut back in a considerable way on our inbound inventory from our suppliers to sort of keep that in balance. On the flip side, we are being a little bit cautious on, hey, when the demand does turn back that we don't get cost sort of in a bad situation. So we are sort of keeping a close eye on it. But net-net, I think it probably continues to come down a little bit over the next couple of quarters.

Okay. Great. Thank you.

One moment for our next question. Our next question comes from Raji Gill with Needham & Company.

Yes. Thank you for taking my questions. A question on the IoT business, down 45% sequentially. You mentioned last quarter, the last two quarters, we kind of felt that we are at a bottom in terms of the inventory purge at least with respect to the consumer IoT customers. So that appears to gets to be taking longer to purge. And then we're kind of seeing, I guess, softness in the enterprise side. So just on the enterprise portion of the IoT business, is there a way to kind of quantify that as a percentage of sales or percentage of IoT? And I would assume that the IoT budgets are going to be set for the year. So we should not kind of anticipate a recovery in the enterprise IoT portion of that business? I just want to get a sense of what's going on in the consumer IoT, the consumer wireless, when do we think that will bottom in terms of inventory and any indications of sell-through demand? Thank you.

Yeah. Rajiv, maybe let me give you just sort of a rough characterization of sort of you asked what's the kind of size of inventory or size of enterprise. Roughly within IoT, enterprise is nearly the same size as consumers, so they both make up a pretty sizable sort of chunk in the end market that we service. Michael, do you want to talk about some of the market dynamics around a few of these?

Yes. I mean -- Raji, I think you got it right in your remarks. If you look at docking stations, you look at enterprise telephony, we've just seen a softness there and we haven't to your point seeing recovery in the consumer. So consumer is kind of hanging around where it was when we last updated you guys, but then that's obviously been compounded by the additional weakness that we've seen in the enterprise over the last handful of weeks. That's definitely taken a fairly significant turn for the worst.

Right. Okay. And then in terms of just the gross margins at 57%, trying to kind of keep that as the floor. I know in the past, you've articulated on numerous occasions that 57% would be the floor. Obviously, the IoT business is at hopefully at a trough level. But if -- I guess the question is if we see more declines in IoT and combined with the fact that there are higher input costs still from TSMC, is there more downside to the 57% gross margin or is there other offsets you could implement?

Well, what I would say, Rajiv, there's probably two factors that play here in the near term with the inventory corrections, IoT is taking a step down, enterprise end customers being a good portion of that, that's really going to play against us in the gross margin mix. And over like the next couple of quarters how that mix plays out is going to have an effect on how our gross margins move from here. But I think the important thing to note is when demand is back at its normal levels and we sort of get through this inventory correction, we continue to believe 57% is the right level and the right sort of target and that we're continuing to feel very good about. So really sort of near term, hey, how the mix plays out is really sort of the pluses or minus. There's a little bit on the input cost. So input cost continues to be a bit of concern. So we work through that. Unfortunately, it's kind of an environment that it's less likely to be able to be passed on to many of the customers. So we -- that's going to be a little bit of a headwind. But I wouldn't think about it as there's like a significant sort of change long term.

And then lastly…

Raji, to your point. Yeah. Just to add to what Dean said, I think structurally, we feel the business is in the same place and 57% is the kind of the floor. I think there's going to be some potentially near-term choppiness. But if you look out the right way to think about it is still 57%.

Got it. Just last question, Dean, and I'll step back in the queue. You talked about kind of OpEx spending controls. But the guidance for OpEx is I guess, roughly flat sequentially in terms of total OpEx. And you've been kind of running around $100 million a quarter in the past. So where are the spending controls, should we be expecting lower OpEx as we progress throughout the year, given kind of the significant decline in revenue or is $100 million kind of where you need to operate the business at?

Yeah. I think for the near term, we're probably going to continue to target kind of around this $100 million mark. I mean there's a couple of dynamics as we cross the new fiscal year boundary. There's some resetting of OpEx that has a bit of a headwind. And so we're trying to mitigate any sort of up on the OpEx and it keep at least flat, if not down a little bit. Really, what we want to do is sort of work through this inventory correction and size the business for the real run rate and not the inventory correction run rate.

Yeah. I think that's important to understand Raji is, we don't believe that the structural revenue run rate is $225 million, right? We believe it's something significantly higher than that as we tried to outline. So I definitely think that there are going to be some things we do around the edges on OpEx, but I wouldn't expect big changes on that line. If we see this persist and suddenly, there is a few point change from us in terms of the structural nature of the business, and we'll make modifications as appropriate.

Got it. Thank you.

One moment as we bring up our next question. Our next question comes from Anthony Stoss with Craig-Hallum.

Hi, Dean, two things. Michael, I'd love to hear more. So your talk or commentary about adding designs to the Wi-Fi solution. When will that be or have a breakout revenue quarter, something that's sizable? And also I just wanted to confirm from either of you two guys if that IoT deal that slipped from December into the March quarter actually closed in March?

Good question, Tony. I mean, the way I think about the Wi-Fi business is, we're probably going to turn the corner on that one, again, calendar 2024. We have a pretty appreciable inventory situation to dig out from. But I think we get back to our run rate level just on the wins we have. We get back to the run rate levels sometime in early calendar 2024. And then to your point, probably late -- our fiscal third, early fiscal fourth, we start layering in some of these design wins and we start seeing that business grow from the levels it was pre-inventory buildup. We've got a lot of good things going on in that business with operators with some of the consumer applications, some of the enterprise applications that Dean discussed. So we continue to be pretty confident, but it's masked right now with inventory, and so we've got to break through that first and then start layering in these design wins, which I'd expect in early 2024.

And Tony, you had a second question on this IoT deal that we talked about in last quarter's call. So the update we gave was we expected in December quarter, but then didn't make the milestone inspected in March quarter. That deal did close. So we completed all the necessary milestones there. And so that deal as we put it in our guide that we told everyone, so that did close in the March quarter.

Got it. And then last conference call, you teased us a little bit about the presence detection solution having a role to play beyond Dell and Panasonic deals outside of PCs. Anything new to report on that outside of PCs?

Nothing material to report, Tony. Good question. I think what we're -- and this is sort of a long-range statement. I think what we're looking to do is, expand that platform from PCs to other computer vision types of applications. I mean, essentially, this is computer vision. We're using a camera to make decisions on the PC. We think that we have applications beyond that, that are pretty interesting and low power types of states where we can use a solution that is built and tailored for the presence detection, but then expand into other areas that have -- that need necessitate low power computer vision. So that's kind of the idea. Obviously, we want to expand our footprint even in the computer vision area and computer vision. You've got it right. We're kind of down to two OEMs. We think we should be able to do better in the near term across the OEM base, but nothing there to report.

Got it. Best of luck, guys. Thank you.

Thanks, Tony.

One moment for our next question. Our next question comes from Christopher Rolland with Susquehanna.

Hey, guys. Thanks for the question. So you guys talked about shipment hold back and that's kind of an interesting topic because there are some in the industry that don't hold back anything. I was just wondering your philosophy there, how you kind of handle that? And what are the cases in which you kind of, I wouldn't say forced people to take it, but strongly urge them to take shipment?

Yeah. I mean I think eventually, Chris, the piper comes calling, right? And I think that we obviously expected to turn the corner kind of now-ish when we talked to you guys last time and that clearly hasn't happened. And I think the situation has been compounded by the enterprise weakness that we've talked to a couple of times here. So our view at this point is rip the bandage off and really allow the current state of demand to settle in. And I think we're there. It's unfortunately a pretty significant drop, obviously, from peak to trough, but we believe that by now allowing this to settle out, allowing the bleed through to happen and not jamming more and more into the channel will be better off long term. I think some of those behaviors that you're describing causes churn with customers, and they remember that, it causes churn with distributors and channel partners and they remember that. And we certainly heard and seen some of the same things that you're discussing, but we took a slightly different path here and decided, look, we need to let this thing settle out.

Thank you. And then maybe a follow-up overall. So for IoT, in particular, in terms of the inventory buildup, like why do you think this happened? Why did it happen at this point in the cycle and why were they overordering? Was it -- does this go way back to the time in which there were shortages or why is this hitting now? Almost feels like we should be coming out in consumer?

Yeah. No, I think it goes back to your point, it goes back several quarters ago, to when there were semiconductor shortages. And I think everybody expected there to be a drawdown by now. Certainly, and our thinking there was going to be this drawdown, but there simply hasn't been a drawdown. I don't know, Dean, did you want to add?

Yeah. I mean the only thing I would say is, just as customers sort of ratcheted their forecast up during sort of the supply crunch. I think customers are a little bit reticent to change their forecast into us as suppliers in a rapid way. So I think what you see is sort of this slow sort of ratcheting down and that has caused sort of the supply chain along the way to sort of move at honestly, at a much slower pace than what we had expected, relative to just a few quarters ago.

Thanks. That’s great color.

One moment for our next question. Our next question comes from Krish Sankar with TD Cowen.

Hey, guys. This is Eddy for Krish. Thanks for taking my question. There were reports of Amazon discontinuing their Halo products. Our understanding is that you had exposure there at some point. First, is that accurate? And second in case that is through how much of the IoT weakness is due to that product line? And I have a follow-up, please.

I think you got it right, Eddy. Yeah. We had exposure to Halo. Our understanding is, it is canceled because it didn't sell very well. So in terms of any revenue exposure we had there was not at all material. It never really took off. So even from an inventory perspective, it's not a driver of the inventory that we're talking to that probably captures it in the thumbnail there.

Thank you, Michael. That's great color. And some investors are concerned that a good part of the weakness is due to increased competitive pressures as other suppliers carry a huge amount of inventory and there is more foundry capacity versus one year ago. What makes you confident that the weakness in IoT is more related to end demand weakness versus competitive pressure or maybe another way to frame it, did you have to walk away from some opportunities because of some irrational behavior from competitors? Thank you.

Yeah. Again, a good question. At least as far as I know, we have no losses. Pricing competition, I think we've outlined this on previous calls has increased. So there's no question about that. But at least as far as I know, we haven't lost a single socket. So nothing that's out there for our end is due to competition even from a pricing perspective, the gross margin is all mix related even though there's an increase in this pricing, it's on stuff that won't hit for quite some time. And by the time it does hit, we think we're -- our enterprise business, which is high gross margin will be back on again, and we'll be able to hold to this 57% mark that we talked about with Rajiv.

Great. Thank you, Michael.

Thanks, Hadi.

One moment for our next question. And our next question comes from Nancy McCurry with Wells Fargo.

Hi. This is Ashley McCurry on for Gary Mobley at Wells Fargo. Curious in terms of ASP versus unit dynamics going into next quarter? How are you guys thinking about the trade-off there in terms of your quarter-over-quarter decline in the guide? Is that driven by volume versus pricing pressure? And are there any areas where you guys are seeing more resiliency in pricing?

Yeah. So Ashley, I think to answer your question, it's largely unit driven. At this point in time, there is not, at least from our perspective, a great trade-off on the elasticity on demand at ASP. So you're lowering your ASP in this environment is in spurring demand. So really, what we see is, it's almost entirely unit driven. Now as Michael spoke just on, I think on the very last question, there is a little bit of ASP pressure from competitors, and it's coming from sort of a few areas where in sort of times of desperation, you do get some competitors that will start lowering their ASPs if they spur demand, but what we've seen so far is that hasn't been true.

And relatedly, are you guys still seeing increased foundry quote see people talked about that on their earnings call this week and how are you passing along those cost increase customers?

We are still seeing increase in foundry pricing. To date, in the last couple of months, we haven’t been all that successful in passing along prices, certainly not to the same degree that we did during the supply crunch. I mean there are little pockets where actually foundry pricing is coming down, but it’s actually in pretty small discrete pockets. So I wouldn’t expect sort of the ability to pass along increased input prices here in the near term. I think if anything, that’s going to be a bit of a headwind probably throughout calendar ‘23 is my guess.

Thank you.

One moment for our next question. Our next question comes from Martin Yang with OpCo.

Hi. Thank you for taking the question. My question is on your Wi-Fi front where I highlighted [indiscernible] year growth. Can you maybe talk about where does that growth come from? Is there any particular verticals that were driving the loan growth?

Yeah. Thanks, Martin. We see strength across the portfolio. I think if you look at our Wi-Fi business is largely driven, as we've characterized before in high-performance applications, cameras, operator set-top boxes, video streamers, things of that nature. What I'd say here is, it's less kind of application driven and more customer driven. We have some new, I'd say, very significant customers that are driving a lot of this activity and those customers supply a whole host of products, I mean, across various verticals. We think that we could start moving into some of these Tier 1 customers. I mean if you look at our business today, we are characterized by these module -- one module guy that ships it to lots or Wi-Fi products to lots and lots of different end customers. And then really only one big Tier 1 customer. I think what's changing for us now is, there's a handful of larger customers that we expect to come online here over the next year or so that, as I said in my prepared remarks, gives us confidence that we're going to continue to build towards this $1 billion business over the next three to five years. So it's probably more customer driven than it is necessarily application driven.

Got it. So just to make sure that I understood. So you had one Tier 1 customer that you already have, is that OEM versus module maker?

Yeah. That's right, Martin. I mean we have one what I would call has a big -- we obviously have lots and lots of different customers, but one big OEM makes up a decent chunk of our Wi-Fi revenue. We expect to continue to do well with that guy. And then another big chunk is this module maker. So we kind of have two guys that are relatively big poles in our business We expect to get three, four and five big pulls here over the next little bit.

And would that come from other larger OEM customers or module makers?

So these are OEMs. These are specifically OEMs. Although to your point, we do expect that we'll be bringing on additional module partners as well. We like that channel that's been a pretty effective channel for us to serve a distributed customer base. Today, we really only have one module partner we'd expect to bring on a couple more here, as we've really booted up our engineered capability in the Wi-Fi business. But when I refer to this customer expansion, it's mostly OEMs. It's all OEMs.

Got it. Thank you, Michael.

I would now like to turn it back to Michael Hurlston for final comments.

Thanks, Sean and I'd like to thank all of you for joining us today. We look forward to speaking to you in our upcoming investor conferences during the quarter, and of course, during our Analyst Day that we'll do in the fall. Thank you.