Thurman K. Case - Cirrus Logic, Inc. Jason P. Rhode - Cirrus Logic, Inc. Chelsea Heffernan - Cirrus Logic, Inc..

Charlie Lowell Anderson - Dougherty & Co. LLC Tore Egil Svanberg - Stifel, Nicolaus & Co., Inc. Ruben Roy - MKM Partners LLC Jerry Zhang - Barclays Capital, Inc. Rajvindra S. Gill - Needham & Co. LLC Christopher Rolland - Susquehanna Financial Group LLLP Adam Gonzalez - Bank of America Merrill Lynch.

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Fourth Quarter and Full Fiscal Year 2018 Financial Results Q&A Session. At this time, all participants are in a listen-only mode. After a brief statement, we'll open up the call for questions from analysts. Instructions for queuing up will be provided at that time.

As a reminder, this call is being recorded for replay purposes. I'd now like to turn the conference call over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin..

Thank you and good afternoon. Joining me on today's call is Jason Rhode, Cirrus Logic's President and Chief Executive Officer; and Chelsea Heffernan, our Director of Investor Relations. Today, we announced our financial results for the fourth quarter and full fiscal year 2018 at approximately 4:00 PM Eastern.

The Shareholder Letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the webcast of this Q&A session, are all available at the company's Investor Relations website at investor.cirrus.com.

This call will feature questions from the analysts covering our company as well as questions submitted to us via e-mail at investor.relations@cirrus.com.

Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections.

By providing this information, the company undertakes no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise.

Please refer to the press release issued today, which is available on the Cirrus Logic website, the latest Form 10-K and 10-Q, as well as other corporate filings made with the Securities and Exchange Commission for additional discussion of risk factors that could cause actual results to differ materially from current expectations.

Now, I'd like to turn the call over to Jason..

Thank you, Thurman. Before we begin taking questions, I'd like to make a few comments. For a detailed account of our financial results, please read the Shareholder Letter posted on our Investor Relations website. Cirrus Logic delivered revenue of $1.5 billion in FY 2018 and GAAP and non-GAAP EPS of $2.46 and $4.27, respectively.

In Q4, we reported GAAP EPS of $0.19 and non-GAAP EPS of $0.51 on revenue of $303.2 million. Our results for the full fiscal year and the fourth quarter were impacted by lower than expected smartphone unit volumes in the back half of the year.

While we currently expect these headwinds to continue near term, with a solid product roadmap and meaningful customer engagements, including expectations for content gains and new design wins, we expect to continue to anticipate a return to year-over-year growth in FY 2020.

In FY 2018, the company executed on a number of strategic initiatives that we believe will enable Cirrus Logic to capitalize on the growing demand for audio and voice components in the future.

We expanded on our product portfolio to span a more diverse solution for flagship and mid-tier devices and continued to increase our penetration of the Android market with new and existing customers.

The company also introduced innovative new technologies that we believe will drive meaningful growth opportunities, including our 28-nanometer voice biometrics component and our 55-nanometer audio and haptic boosted amplifiers. Since introducing our 55-nanometer boosted amplifiers in Q2 FY 2018, customer response has been very positive.

We are pleased to have audio amplifier design wins with many of the largest smartphone OEMs in the world, including our first high-volume socket in a mid-tier platform at a key Android account. Initial shipments with this customer have begun and are expected to accelerate as we move throughout the quarter.

We also continued to gain momentum with our haptics amplifier in the March quarter and are actively designing with a variety of Android OEMs.

We are pleased to have secured our lead design win with the first-generation haptic product, which is expected to begin shipping later this year, and we are engaging with customers on our second-generation component.

As we enter FY 2019, with a comprehensive portfolio of smart codecs, boosted amplifiers and hi-fi DACs that target a wide range of smartphone, digital headset and smart home applications, Cirrus Logic is laser-focused on execution, expanding our customer base and capitalizing on increasing demand for compelling audio and voice components.

Before we begin the Q&A, I would like to note that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship. Operator, we are now ready to take questions..

Thank you. Your first question comes from Charlie Anderson with Dougherty & Company. Your line is open..

Thanks for taking my questions. Jason, there was a reference in the Shareholder Letter to biometrics, the engagement with the Android customer. I wonder if you could maybe speak to sort of the progress you're making there, sort of roughly when you think that will materialize into a shipping product.

And then beyond them, how broad or narrow the interest seems to be in that product, maybe both from a customer account standpoint or types of end products, however you want to quantify it? And then I've got a follow-up..

Sure. Yeah, I mean, so I would say the interest in the technology is pretty close to universal.

There's nobody that we talk to about voice biometrics that would not like to have it if it indeed does what we say on the tin and as reliable and non-hackable and everything else, the number of use cases that it enables and the fact that it changes the voice assistance for all of the hype in the market.

Until they're secure enough to read your email and whatnot, they're really more of a toy than they are really fundamentally useful. So, there's a lot of interest in it. I would say that the – and our initial device, right out of the gate, has worked better than I would think we would have even hoped when we dreamed it up on paper.

It works extremely well. It's met our reliability goals in terms of being able to deliver fingerprint-like performance, to be able to show promise for doing so in a noisy environment and so forth. So we're extremely pleased from that perspective.

As expected and as we've talked about in the past, it is relative to what we sell in the rest of our business an extraordinarily-complicated product and process both for ourselves and also for our customers to think through how they would use the device and what do they give it access to and how do they even – so when we say 1 in 10,000 false accepts, every customer will have a different methodology for how do they validate 1 in 10,000.

It is, as you might imagine, not as simple as having 10,000 people say the phrase or say something and see if the phone recognizes them when it shouldn't.

It's much more statistical in nature and what sort of speakers or is it somebody that's trying to impersonate you or just some random person or what do you mean by false accepts is even a discussion in this context. So, the net of all that is just to say, there's a lot of it to work through with customers.

A lot of, okay, we get – set a benchmark performance. They run whatever their methodology is for trying to confirm that on their own. They get a different number. We work through it and then move on to the next set of benchmarks. So, as expected, it's a pretty complicated design win for a lot of reasons. I think we're making good progress on that.

It remains one of the further out things on the growth strategy. But we see really good traction and a lot of interest from customers. As is typically our style, we try to focus on a very small number of large customers. And then when we start getting some success there, we'll move on.

It's definitely the case where we could drum up more interest than we could possibly support and so we need to make sure that our resources are focused on the folks that can move the needle for us..

Got it. That all makes sense. And then there was a comment also in the Shareholder Letter about branching into other areas of mixed-signal other than just audio and voice.

I wonder maybe if you could give us a little background there, how far along you are in those efforts? Is that a new effort? How it's influencing the level of R&D spending? And then, as we have this revenue headwind sort of in conjunction with that, how does it impact how you guys are looking at operating margins going forward? Thanks..

Sure. Well, so a really good example of it that's already out in the wide open is haptic. So that's an example where, in that particular case, we already had a piece of technology that was a very close fit in terms of the silicon vis-à-vis our new 55-nanometer amplifier, happens to be a great device for driving a haptic actuator.

And then the team did a great job of repurposing that via new algorithms and so forth to deliver a really compelling user experience on the haptic side.

So, whether it's combinations of analog and digital to provide a really high-performance, very low-power mixed-signal or increasingly, like with the haptics scenario, very high level of integration with 55-nanometer and also very high voltages or reasonably high voltages in the 10 to 12 to 15-volt range to do neat new things.

That's something that we always pay a lot of attention to and we're finding more and more opportunities to do things like that in applications that we already serve that are already large where we've got great well-established customer relationships.

So we see really good opportunity to continue to grow our content with customers that we already know and love and develop meaningful relationships with new ones with that capability. As it relates to op margin, it's an area where first and foremost we manage the company from a very long-term perspective.

Obviously, we are mindful of short-term headwinds and we try to be very careful when the environment's the way that it is today, but at the same time, we also want to make sure that we capitalize on the opportunities that are in front of us. So I think there's some pretty specific guidance in the letter regarding OpEx and so forth.

So I think that will be helpful as far as working through..

Your next question comes from Tore Svanberg with Stifel. Your line is open..

Yes, thank you. In your Shareholder Letter, you referenced you now expect income in (11:00) 2019 to be down 10%. Could you give us a little bit of a sense of the linearity? Because obviously, (11:08) you're starting here on a pretty low point in Q1. So just if you could give us a sense for the linearity of that, that would be helpful..

Yeah, sure. Well, as usual, we don't usually expect our business to be extremely linear in the first place. It's very cyclical, and then certainly when we get a bit of a headwind like we have at the moment, there can be a pretty significant disconnect in terms of trueing things up relative to the expectations that were originally set and so forth.

And, of course, as always, the further back the supply chain you go, probably the bigger the – the closer to the end of the bullwhip you are. So we've got some of that going on.

Some of the change in tone, too, is frankly just when things are the way they are for some of the models that we're in, that naturally makes us a little bit more conservative looking forward, not necessarily with any data to guide that point, but we're certainly mindful of all of the noise around.

A number of the markets that we serve are maturing and so forth. So, when we say that we want to caveat it with that isn't necessarily from any customer outlook, it's just like in lieu of a ton of data, let's be mindful of slowing growth in some of the markets that we serve.

And if things turn out to be more exciting than that, we can be positively surprised. But anyway, it is definitely – with all that said, it is probably more of a backend weighted year, but that isn't anything unusual.

And as we kind of hinted around between the last Shareholder Letter and this one, we do see signs of progress as far as growth for next fiscal year starting kind of early in the calendar year next year.

So we think we're well-positioned to take advantage of some of that growth, which should also, in part, lead to some progress on the diversification front..

That's helpful. And you also mentioned a large number of new tape-outs. I was hoping you could put that into perspective on where the company has been historically.

I mean, it just sounds like you have a lot of irons in the fire and just from a sort of market opportunity perspective if you can talk about that in relation to how many tape-outs or big tape-outs you've had in the past..

Yeah, I don't have a specific number on it.

But, I mean, we've got a meaningful number of tape-outs this quarter that are all kind of Rev A, (13:45) zero, all in expensive fine-line geometry processes, some of which are targeted at the next part in the product line to maintain share and, as usual, try to grow a little bit of content in the process, some of which are new products designed to take share in products that we haven't had content or haven't had as much content in recently.

So it's kind of a broad gamut, but it's all – the ones that are taping out this quarter not only are meaningful from an expense side, but they're very much needle-mover-type tape-outs from our perspective. So, from a shareholder perspective, if you're looking at kinds of expense, that's about as good a kind of expenses you can have..

Your next question comes from the line of Ruben Roy with MKM Partners. Your line is open..

Hi, thanks. Jason, the first question I had was around the mid-tier high-volume Android win and maybe you could just talk about sort of – now that you have that win, how you assess the content in those phones.

The reason I'm asking is I'm just wondering when you guys started to go and explore diversifying into these types of phones, early days we weren't sure what the content opportunity could be and I'm wondering if the mid-tier guys are starting to move up in some of the feature sets that flagship phones have, and how you assess the opportunity in those phones going forward.

Thank you..

Sure, yeah, I think you hit the nail on the head. Definitely the mid-tier folks, while there's a lot of discussion on the flagships about maybe they need to be a little bit more cost conscious, I think there is room on the mid-tier to maybe reach a little further and deliver a little more compelling experience.

I think that's the case with the model on the mid-tier that we're talking about in the letter and I believe is now subsequently launched.

It's a really compelling handset for a pretty compelling price and customers in that – we've been hearing for and talking about in our communications that folks in the mid-tier, no matter what kind of handset you're making, you really want it to be a good speaker phone. You want it to be loud enough you can hear it in the car.

You want it to do a really great job of echo cancellation and so forth and not be distorted and things along those lines.

And we still see opportunity for – even in the mid-tier for things to move to stereo over time, whether it's really because there's a need for stereo or whether that's just a good way to make it louder with two small speakers versus one bigger one in a space-constrained handset. So we do see mid-tier folks trying to move up.

I think the one that's just launched is a great example of that. It looks very compelling to me.

We'll see how the market salutes, but the team across the board on the amplifier side, as we've moved towards the general Android market, I think from design to marketing to sales across the board did just about as good a job of knocking the cover off the ball as we could possibly hope for. And that product hit the market right on time.

It worked with very minimal errata (17:00) out of the box. And while it's always nice to have a really great strategy, it's also really nice to have your primary competition, particularly in China and the rest of the Android space, it's always nice to have your competition have a bunch of, well, let's just say, challenges pop up at the same time.

So, yeah, great job by the team and I think the way you characterized it is just exactly right..

Thanks. And if I could just quickly follow up on the discussion you're having with – as part of Tore's question and just sort of the new guidance from previously. Last quarter you guys talked about potentially having flattish revenues for fiscal 2019, now down around 10%.

I'm just wondering if you could just maybe talk a little bit about the puts and takes as it relates to diversification into some of these new markets in driving what now expect versus sort of maybe just cleaning up inventory and continuing down the road with your largest customer.

I mean, if you could just give us a little bit of an idea of how you're coming up with that because there are significant upticks coming up later this year to get to that number based on where we are with the June guidance. Thank you..

Sure. Yeah, I mean, not getting into the real specifics about what comes later in the year, just overall, again, relative to what we had said previously, our view now is the handset opportunities or the handsets we're shipping in are a little weaker than we probably expected them to continue to have been.

Nothing new there, but yeah, as you pointed out, it is always very difficult to correlate any of what our customers are doing with what we do just due to various inventories and whatnot and try and reconcile, that is difficult even for us with all the data we have that isn't generally available.

It's just difficult and it ultimately lines up just fine, but it would be difficult to see from outside.

So, generally, the biggest deltas are, one, a little bit weaker on the handset side; two, a little more conservative modeling of what happens later in the year than what we had, which frankly is not, again, just to drive that point home, nobody knows how many people are going to buy a new handset when it's launched on the market – not us, not our customers, not analysts, or you name it.

Everybody's got an opinion and then we find out what's right when that actually happens (19:32). So I think our takeaway from last year is just be conservative on modeling, that sort of thing, as it relates to external communication. And then if it's better than that, we'll be positively surprised.

And then two – and then finally, we do see some really good growth coming towards the very end of the year. We see good penetration with some of the new products that we've got out that should be shipping in that kind of timeframe.

It's maybe a little bit lower from a content growth perspective than we had expected previously, although those opportunities are still there and also some of those baselines could change. Some of our customers change their opinion or their plan of record pretty dramatically from time to time.

But nonetheless, what we are looking at, even with the guidance that we've given at this point, as you pointed out, calls for some pretty meaningful movement towards the end of the year, which is what we expect to have happened.

And not only is that good growth, but it is also meaningful diversification, and the other holes that people have expected be created in that time. There's good progress on both fronts..

Your next question comes from the line of Blayne Curtis with Barclays. Your line is open..

Thank you. This is Jerry Zhang on for Blayne. Thanks for taking my question. I just had a question on-so you guys are expecting to return to growth next year, and I'm just wondering what the puts and takes are within that. And also, do you expect your largest customer up or down next year? Thanks..

Well, I'd rather not comment that far out on specific customers, but we see progress in that timeframe with the kinds of products that we've been talking about. All of our strategic initiatives that have been part of the narrative for the past year or so feel like we're in good shape.

We've said that nearer-in ones of those are things like amplifiers and headsets. We expect to see good progress in that timeframe.

As it relates to our largest customer, without getting into specific timelines and so forth, certainly with some of, for example, your firm's narrative around the potential headwinds, even with that notwithstanding over the long term, we see opportunity to expand our content there over time. That relationship remains extremely robust and intact.

We don't see our opportunities there shrinking or going away in any way. It obviously continues to be an opportunity for us to do well and contribute to success whenever we can. So we don't want to get too caught up in specific timelines on what happens when.

But we do see good opportunity for growth there and also for opportunity for diversification via success by a lot of the product initiatives we've been talking (22:36)..

Sure. And just as a follow-up, within that, you talked about some content gains into next year.

I guess, can you talk about which types of products you think are going to gain the most content there?.

Well, as I've just been talking about, kind of the closer in on the initiatives that we have underway are amplifiers and headsets and certainly we would expect to make good progress on those in that time..

Your next question comes from the line of Rajvindra Gill with Needham & Company. Your line is open..

Yes, thank you. A follow-up on the diversification strategy. So, in the past, you've outlined several opportunities, whether it's in the smart codec, mid-tier codec, boosted amplifier, microphones, MEMS microphones and digital headsets, so a lot of possible dollar opportunities. And you're seeing some traction on the amplifier side.

But I was wondering if you could provide a bit more detail in terms of, of those areas, which ones are going to start to hit the model towards the end of this year going into next year? Because you basically have put it out there that you are going to grow in fiscal year 2020.

And that's a long time from now, but you're, nonetheless, still putting out that you're going to grow. So I was wondering if you could elaborate a little bit further on what's going on with some of those specific products and the traction of the marketplace..

Sure. Well, just to retract the forward-looking statement you made for me, we expect to grow in that timeframe. Things can always change, but that's certainly our current outlook.

I think, as I just said to Jerry's question a second ago, the nearer-in things on our strategy have been nearest being amplifiers, somewhere in there being headsets, and then continued success with the smart codec product line in its various forms and penetration of mid-tier and broader penetration in Android, all of which are in play.

Further out than that is voice biometrics and microphones. Had some good chat on the biometrics earlier on the call just to put – since we haven't hit on microphones yet, we continue to make progress, whittling down the challenges there.

We continue to believe that we have the opportunity to position ourselves as much as we are on the silicon side, the premier supplier of audio components in that space. And we think once we do that, we've got the opportunity to really gain some traction with the combination of microphones sold with our components as a chipset.

So there is still technical challenge to be mastered there, but I think the team has made good progress on a very, very hard challenge. And our (25:38) engagements are such that we believe the audience will be pretty receptive once we get to the finish line there..

Thank you for that. And just a follow-up. So, the opportunity in voice-assisted devices, smart speakers or just generally where voice is becoming the major interface between people and devices, that's a very big market. And you do have somewhat of an incumbent there, given the acquisition that a competitor made or quasi competitor.

So, I was wondering how you're kind of looking at that market as well. I know you're focusing on voice biometrics for smartphones. But what about, like, voice-assisted devices and some of the other devices that are going to start to include voice? Thank you..

Sure. Yeah, it's an intriguing market. It's something we've all looked at and watched since we were kids watching The Jetsons. So, it's something we're intrigued by. I don't know that and the broad open market that from a dollar content perspective, it is actually that enormous yet. But we've certainly got our eyes on it from an opportunity perspective.

Obviously, if you're one of our customers and you're charging a hundred or hundreds of dollars for it, then yeah, it's a big dollar opportunity. But if it's a $0.50 DAC or whatever sort of component might be from us, in the short term, it's not huge yet. We are in a number of those systems with various different components.

It remains a very interesting opportunity for us. At the very high level for things like our voice biometrics device, in my opinion, those devices should be secure.

They should know you're you and that other people are not you, and they give you access to, whether it's financial or very sensitive things, like e-mail or text or whatnot, I think those are technologies that are just as applicable in a connected home as they are in a handset.

Now, some of our customers, or some of the suppliers of such devices today, have pretty different opinions. Some of them have their own captive technology on, say, far-field beamforming to make it be able to hear you and distinguish you from noise from across the room. We think we can do better than that.

It's always a little bit of a challenge to sell into one of your customers that has some of their own technology. So we got to weigh it against that. Some companies out there, frankly, don't really want anything between the microphone and beaming your data to the cloud.

Because who knows what they're doing with all of that audio data, which makes me a little uncomfortable as a consumer. But anyway, it is an interesting thing that's going on there. From our perspective, there should be a secure biometric gateway between anything you've said and the Internet or the cloud or (28:36).

So we think voice biometrics can play a key role there. Again, handsets are bigger today. So that's where our primary target is. Because we really believe in the hands-free use case, voice becomes a really compelling addition to a voice assistant.

But longer term, we expect to target things in the home with that technology, in addition to things like noise suppression and echo cancellation and other kinds of capabilities that we can bring to bear and then more broadly in the short term, just selling things like D-to-A converters or codecs and so forth.

These smart speakers is already a business for us and becomes more compelling over time..

Your next question comes from the line of Christopher Rolland with Susquehanna International Group. Your line is open..

Hey, guys, thanks for the question. So you guys mentioned some design, some haptics commentary. You said that you secured a first-gen haptics product that was shipping this year. I guess, my first question is, is that with an existing haptics customer? And then you mentioned a second-gen as well.

Perhaps talk about other engagements there with some other players and how big that could be for you? Thanks..

Well, the previous customer-the only other customer we've shipped things in the haptic universe too is the one we don't talk about. So, anything we're talking about in the Shareholder Letter is kind of new. When we said first-gen, we're referring to our first-gen haptic product.

And then we're engaged with this latest 55-nanometer second-generation product on multiple devices and multiple customers. So that'd all be new. That'd all be diversification. And so far, the user experience that that delivers is really, really compelling. It's something we're pretty excited about.

So, again, much like the audio-amp team, which this is an offshoot of just a great job by the team, both on the silicon side and on algorithms and tools and customer engagement as well. So, that's kind of the color on the haptics opportunities that we're expecting to see..

Great. And then you had also mentioned microphones and you made some progress there on the supply chain in Taiwan. Perhaps talk about progress there. You talked about capacity in place, but potentially increasing capacity if you had the demand, maybe just talk about how you're viewing that market and the opportunity there for you. Thanks..

Sure. Well, certainly the opportunity for microphones is large. I would say that the satisfaction level with the existing supply chain in microphones is not high. So there's definitely a vacuum for what we do or what we potentially can do in the microphone space and what we're longing for on the silicon space.

I wouldn't view it as a capacity thing per se today. I mean, we certainly are working with our supply chain to ensure that it is scalable and in some cases to scale it a bit.

But really it's just making certain that we can work with our customers to single source the microphone and have it be producible in the tens and hundreds of millions of units range over time without turning up in newspaper for doing bad things to somebody's production line, which is kind of a key goal of ours.

So, again, no disrespect to the folks that make microphones (32:17) really, really hard for everybody involved in and everybody that makes them has challenges from time to time (32:25). We're trying to boil that down to where it is as reliable and productionable as our silicon.

Whether anyone can get it all the way to that point is an interesting question, but certainly we think there's good opportunity to make it a much more reliable supply chain than what's been demonstrated so far.

So we're making good progress on that effort, but it remains one of the things that's kind of further out there from a needle-mover perspective. It remains a needle-mover for sure and we should see good signs of progress we would hope over the next year as we continue to pursue that opportunity..

Great. Thanks so much, Jason..

You bet. Thanks..

Your next question comes from the line of Adam Gonzalez with Bank of America Merrill Lynch. Your line is open..

Hi. Thanks for taking my question. Just following up on an earlier question about your R&D efforts targeting opportunities beyond audio and voice. Just wondering if there's anything on the horizon that you're looking at outside of the mobile or smart accessory market..

The mobile and that sort of accessory is kind of where we're focused today. We see a ton of opportunity for the kinds of things that we do. And in a lot of cases it's much easier to take share in products that you're already shipping than it is to go find new ones.

Certainly, we like to leverage existing products and existing technologies into new customers and markets, but also bring in new things to bear in boxes that we already serve is – you've got the engineering relationships intact and all that sort of thing.

So it's a little bit of both, but probably more skewed towards in the handset space where we've got a real good position of trying to expand the kinds of things that we're doing..

Got it. And then just following up on buybacks, looks like they've picked up somewhat in the quarter.

Do you have a plan for the remaining $200 million or so that's on the authorization? Should we expect the pace of buybacks to be more front-loaded in the first half with the stock where it is right now? And then can you remind us your priorities for use of cash? Thanks..

Sure. Yeah, I mean, we don't try to get in front of ourselves about what and when we're going to do on the buyback side. We've got a pretty significant quiet period. We don't do programmatic trading and all that because I figure some crafty algorithm person will sniff that out pretty quickly.

So we just take it opportunistically and take some shares off from time to time when we think the market get its wrong, frankly, and so that's kind of how we view it. That's how we'll view it going forward. So we don't have a real projection there, but we'll continue to be keeping an eye on that.

As far as uses of cash, the highest priority would be acquisitions like the Wolfson acquisition that worked out as well as could have been worked out – as good as it looked on paper, it worked out better in reality. So things like that would be the highest and best use of our cash, but they're also really rare.

We've done smaller ones subsequently, which have also worked out well for us, but don't consume quite as much cash. We continue to expect to generate quite a lot of it. So, that's the highest and best use of cash. In lieu of that, we think buybacks are the most efficient way to go about it.

We get the question from time to time about dividends and, in fact, I think we had a write-in question regarding – from an investor about whether we think about dividends or how we think about dividends. We certainly discuss it from time to time.

The feedback from our largest shareholders has been, and this is consistent with our own view, that let's face it, we are in a volatile set of markets and financially there's not a whole lot of difference between a buyback and a repurchase from a numerical perspective.

So, if you are likely to be volatile, there's additional leverage to be had and flexibility to be had via buybacks.

And occasionally the argument gets advanced to that, okay, there's a bunch of investors that won't invest in your stork if you don't pay a dividend, and the analysis we've done would suggest that those are not likely investors that would pursue a company with the volatility that we sometimes have.

So, on the balance for now and it certainly could change, we discuss it from time to time and engage relevant expertise as needed, but the view at moment is we're better off where we stand with the buybacks on as just an outright use of cash..

Your next question comes from the line – sorry, go ahead..

Sorry, I spoke so long about that, I forget whether there was any more to that question or not, but you can move on now and circle back on that if needed..

Your next question comes from the line of Tore Svanberg with Stifel. Your line is open..

Yes, I just had a question on the MEMS capacity and Taiwan, you already answered that question, so thank you..

Okay, great. Thanks, Tore..

Your next question comes from the line of Blayne Curtis with Barclays. Your line is open..

Hey, guys, thanks for taking my question. Just kind of curious in your fiscal guide, if you look at portal revenue out of (37:50) your largest customer, it was down last year. I'm just kind of curious to your expectations. I know you have a lot of vectors you've been talking about in the future.

I'm just kind of curious for this year is that revenue going to be up or down?.

Yeah. We don't want to break it out by customers. I mean, there's certainly – this isn't a big year of content expansion. We do see opportunity for that in the future. And there are certainly plenty of rumors around which we, of course, always model things very conservatively. Nothing has changed on that front.

So I think over time our relationship is healthy, the opportunities we're engaged in are great. We're extremely excited about them and thankful for them, but I don't want to get too far ahead of ourselves about what we're working on and when it might kick in. But obviously, anything we're working on in this timeframe is a ways out there.

A number of our customers kind of think kind a long way ahead, so it's a big advantage for us when we get the opportunity to work with those..

Got you. And then this might have been asked, but I want to just ask on the mic expansion. I mean, this is the product that you've been working on for some time and you've had one customer on a fairly small scale. I know you have had different approaches, smaller mics, but also some proprietary interface.

I'm just kind of curious, you're adding capacity, so you think you're getting some wins here.

What's driving those wins and what kind of scale could you be talking about in mics?.

I would view the capacity more as making sure we can scale things. We're not pursuing growing the volume of the microphone business in the very short term, so it's really more about thinking about how you wisely produce things in the tens and hundreds of millions of units range and then exercising that capability a little bit.

So it really remains – the success or failure for our microphone business really remains pretty much lock, stock around reliability and quality of the product we can produce.

When we get to the point where we are comfortable, as I said on the previous couple of questions ago, where we can comfortably look at Tier 1 customers that ship – like real Tier 1 customers that ship hundreds of millions of microphones a year, in the eye and say we can single-source a microphone, that's when the business becomes interesting for us, and that's kind of everything we're working around today is geared towards over the long term being able to do that.

So it's really more about developing the engineering and production capability rather than – I mean, it is capacity also, but primarily that's not the problem we're trying (40:39) by bringing the equipment online..

That's helpful.

And then if I could just have one last one, and I apologize, a little repetitive, but in terms of your view this year at your largest customer, what's your confidence level in the chips you'll be supplying in those phones? Is everything determined? You have pretty good visibility? Or there are still some things to be determined?.

I mean, customers can always change their plan. But I'm very confident that we know what the current plan is..

Okay. Thanks, Jason..

You bet..

Your next question comes from the line of Adam Gonzalez with Bank of America Merrill Lynch. Your line is open..

Great. Thanks for letting me ask a follow-up. Just looking at your implied fiscal 2019 OpEx guide, I think in the past you had said something like 8% to 10% growth, ballpark, for the year. And it looks like that's relatively unchanged, if I just extrapolate flattish OpEx the rest of the year.

I'm just wondering why there isn't any flexibility in the model, given the weaker-than-expected demand outlook? Thanks..

Sure. Well, it's certainly something we're looking at. But at the same time, as I said on one of the earlier questions of the call, we manage the company for the long term.

We don't see a ton of point around optimizing around a small handful of not-great quarters because there's nothing really meaningfully changed about the outlook we have for the longer term.

So that said, rest assured, we absolutely look at opportunities for lowering the OpEx whenever it's reasonable and prudent to do so, but with the caveat of not shooting ourselves in the foot and the things that we're targeting going forward.

So, it is relatively difficult in that context to be able to turn the screws on OpEx in the short-term, without having a pretty negative effect on the outlook for the company in the longer term.

So, in light of what we expect to see in the FY next timeframe, then we're just, we're trying to balance the OpEx (42:46) around the short term versus in the FY 2020 timeframe not being on our back foot trying to catch up with what we expect to have happen. So, it's kind of a balance. It's something we've got our eyes on going forward.

If things turn out to be better than what we've conservatively modeled, then that's one thing. And certainly, the opposite is true as well. So, something we got our eyes on, and now we're kind of balancing it as best we can..

That's helpful. Thanks..

And there are no further questions at this time. I'd like to turn the call now over to Chelsea Heffernan..

Thank you, operator. We will conclude the call with questions today that were received via email.

Can you provide an update on the diversification efforts and how we should think about timing?.

Sure. So we've kind of hinted at that on a couple of the answers earlier. And I should say, I appreciate the write-in question. We don't get as many of those as we would like to have. It's much appreciated. So we do see good opportunities for diversification in the next year timeframe. I think actually we've set the stage for it quite well.

A lot of the Android market is frankly composed of quite a lot of base hits. And we've done a good job with those over the past couple years. We're shipping a significantly higher number of models of handsets than we've done in the past.

And some of the ones we've won most recently and have launched very recently start to be a little bit bigger than some of the others. And then certainly in the early next year timeframe, the ones we're swinging for the fence on are bigger still. So I would expect to see progress on that front next year.

The good news is we're not diversifying the bad way, which is shrinking. So, we see, just to be clear, opportunities to diversify the business by growing with the rest of our customer base. We see the opportunity pretty meaningful. Again, you never count your chickens till they're hatched.

We do see the opportunities to get back to having more than one 10-plus-percent customer. And then over time, as we start to gain more traction on headsets, biometrics and microphones, that's when potentially we can really start to significantly move the needle..

Thanks, Jason.

Our final question was related to AI and how you view the opportunity for Cirrus?.

Sure. It's something we're excited about. I think there's companies out there that, in their respective spaces, have done a really remarkable job pivoting towards differentiating around AI or machine learning or however you want to look at it.

We did an acquisition a year or – I guess, it was last year – around the applications of AI and machine learning to audio and voice applications. That today is targeted at our voice biometrics technology, which is kind of the first area that we see it having an impact on.

But really the potential for it to change things in our business, whether it is either things that were implemented as more traditional expertise-driven algorithms historically becoming more AI, machine learning in nature or using machine learning to tune traditional algorithms. We see a lot of opportunity to do that.

And then also, just in the audio and voice arena, thinking about the opportunities for general market – to enable the general market to tinker with these new and emerging technologies is interesting to us.

So, certainly nothing that is – well, outside the voice biometrics, that (46:40) is real noteworthy to report on yet, but it is an area that we're thinking about carefully going forward..

Great. That was the final question..

All right, thank you. In summary, Cirrus Logic made meaningful progress in FY 2018 with numerous strategic initiatives that we believe position the company to return to growth in the coming years.

Specifically, we expanded our portfolio of smart codecs and boosted amplifiers, moved into new applications with haptics and voice biometrics products, and broadened our customer base.

We believe these innovative products, coupled with an extensive roadmap targeting mid-tier and flagship devices across the smartphone, digital headset and smart home markets will enable Cirrus Logic to help deliver a differentiated and consistent audio and voice experience and contribute to the company's future success.

I would also note that we will be presenting at the Cowen Conference in New York on May 30 and the Stifel Conference in Boston on June 12. Live webcasts of these events will be available at investor.cirrus.com. If you have any questions that were not addressed, you can submit them to us via the Ask the CEO section of our investor website.

I'd like to thank everyone for participating today. Goodbye..

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