Jalene Hoover - Head of Investor Relations Tyson Tuttle - Chief Executive Officer Bill Bock - President John Hollister - Chief Financial Officer.

Harsh Kumar - Stephens, Inc. Suji De Silva - Topeka Capital Markets Craig A. Ellis - B. Riley & Co. Anil Doradla - William Blair & Company Ruben Roy - Piper Jaffray John Vinh - Pacific Crest Securities Blayne P. Curtis - Barclays Capital, Inc. Tore Svanberg - Stifel, Nicolaus & Co. Matthew Ramsay - Canaccord Genuity Inc.

Ian Ing - MKM Partners Ryan Goodman - CLSA Limited. Latif Malik – Citigroup.

Good morning ladies and gentlemen. My name is Ryan and I will be your conference Operator today. At this time, I would like to welcome everyone to Silicon Labs’ First quarter 2015 Earnings Conference Call. All lines have been placed on mute in order to prevent any background noise. After the speaker's remarks we will have a question-and-answer session.

[Operator Instructions]. Thank you. I would now like to turn the call over to Ms. Jalene Hoover. Please go ahead..

Thank you, Ryan. Good morning everyone and thank you for joining us this morning. I’m joined today by Tyson Tuttle, Chief Executive Officer; Bill Bock, President; and John Hollister, Chief Financial Officer. We will discuss our financial performance and review our business activities for the fourth quarter.

After our prepared comments we will take questions. Our earnings press release and the accompanying financial tables are available on the Investor Relations section of our website at www.silabs.com. This call is also being webcast and a replay will be available for two weeks.

Our comments today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this call, and that information will likely change over time.

By discussing our current perception of our markets, the future performance of Silicon Labs, and our products with you today, we are not undertaking an obligation to provide updates in the future.

There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results, and financial condition.

We encourage you to review our SEC filings, which identify important factors that could cause actual results to differ materially from those contained in any forward-looking statements. Also, the non-GAAP financial measures discussed today are not intended to replace the presentation of Silicon Labs' GAAP financial results.

We are providing this information because it may enable investors to perform more meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations. I would now like to turn the call over to Silicon Labs' Chief Executive Officer, Tyson Tuttle..

Thanks, Jalene, and good morning, everyone. We are hitting the ground running this year with record revenue in all of our growth business including our Internet of Things and infrastructure product categories. Broadcast automotive also established its sixth consecutive record revenue quarter.

I’ll talk more about our product developments, market opportunities and business trends shortly. For now, I would like to turn the call over to John who will review our first quarter financial results and guidance. John..

Thank you, Tyson. Before I talk about the results for the first quarter, I would like to announce some changes to the products categories that we use for IR purposes.

Effective this quarter we will specifically breakout the two primary growth drivers from our broad based categories which are the Internet of Things and infrastructure categories, what we previously called MCU, wireless, sensors and analogs will now be called the Internet of Things.

The infrastructure category will include our timing and isolation products for the communications, industrial and green energy markets. There are no changes to our broadcast or access categories and we will continue to report on those as we have been doing.

This morning, we also posted and updated IR presentation in the Investor Relation section of our website that details these new categories by quarter going back to fiscal 2012 through Q1 of this year. We’re pleased to announce that first quarter revenue and earnings exceeded our expectations with revenue reaching a $164 million.

Total Q1 revenue was up 12% year-on-year including contributions from the acquisition of Bluegiga or a 10% organically. Our strategy to accelerate the company’s growth performance by investing in large diversified and high growth markets is working. Internet of Things revenue hit a new high in Q1 at $61 million up 6% sequentially and 26% year-on-year.

During the quarter our 8-bit, 32-bit, and wireless products all delivered strong performance. Additionally revenue from the sale of Bluegiga modules was near the top of our guidance range for those products. Q1 IoT revenue represented 37% of our revenue mix up from 34% for 2014.

Infrastructure products had an outstanding quarter and represent the primary driver for our strong gross margin results. First quarter revenue was $30 million up 10% sequentially and 25% year-on-year. Timing and Isolation each delivered new records. Infrastructure represented 19% of Q1 revenue, which is consistent with 2014 levels.

Access products were about flat in Q1 coming off of a strong Q4 and ended at $27 million or 16% of total revenue. As we expected broadcast products were down in Q1 and ended at $46 million or 28% of the mix reflecting seasonality and consumer partially offset by a record quarter in automotive.

We’re pleased to report that the administrative law judge overseeing the ITC investigation initiated by Cresta Technologies has issued a notice of initial determination in Silicon Labs favor. The judge found that all patent claims asserted against Silicon Labs were either invalid or not infringe.

This finding is good news for our customers and for our consumer broadcast business. We continue to grow channel revenue with distribution representing 64% of sales for Q1 up about two percentage points from Q4. We had no customer greater than 10% of total revenue for the quarter.

Geographically growth in the Americas and Europe was most significant reflecting strength and industrial and consumer markets driven by IoT products. Non-GAAP gross margins for Q1 exceeded expectations due to the strength and infrastructure revenue and ended at 60.0%. Non-GAAP operating expenses for Q1 were on track at around $71 million.

R&D expenses were $38 million reflecting seasonally high fringe costs offset by lower cost associated with new product introductions. SG&A ended at $33 million also reflecting the bump in fringe combined with higher variable cost on higher revenue and offset by reduced legal costs. Non-GAAP operating margin was 16.8% for the quarter.

Our non-GAAP effective tax rate was in line with our expectations for the quarter at just under 15%. Due to the combination of strong revenue product mix driving higher margin and in line OpEx results our earnings for the first quarter exceeded our expectations at $0.54 per share non-GAAP.

On a GAAP basis first quarter gross margins were 58.9%, which reflects the fair value write up of Bluegiga inventory. R&D investment increased slightly to $47 million and as SG&A expenses increased to $42 million resulting in GAAP operating income of $7 million or 4.4% of revenue.

GAAP EPS for the quarter ended at $0.15 per share, which was slightly above our guidance range. Turning now to the balance sheet, we ended the quarter with cash, cash equivalents and investments totaling $269 million, which was down approximately $74 million from the end of the year.

During Q1, we closed the acquisition of Bluegiga, and also funded the holdback release and 2014 earn out commitments on Energy Micro, which combined represent $83 million of capital deployed for strategic M&A. We also completed around $10 million of stock buyback in the quarter and have $83 million remaining authorized.

Cash flow from operations in the first quarter was $24 million. Accounts receivable declined to $67 million or 37 days sales outstanding, which is a multi year low. We continue to have no known collection or bad debt issues. Inventory levels increase during the quarter to $61 million with turns declining to 4.4 times.

This increase in inventory deflects planned build a head for the year to support revenue growth as well as safety stock for certain supply chain transitions that are taking place this year.

Overall, we’re comfortable with these inventory levels, which are needed to support growth in the Internet of Things and infrastructure of markets, which carry higher inventory requirements than more vertically oriented markets. Channel inventory increase slightly to 51 days. I will now cover second-quarter guidance.

We expect second quarter revenue to reach a new high for the company in the range of $164 to $169 million, with another record in our IoT products reflecting sequential growth of at least 10%. We anticipate continued strength in our infrastructure products with Q2 revenues flat to slightly up. We expect access to be about flat.

We expect Broadcast to be down in the second quarter with a decline in consumer, partially offset by continued strong performance in automotive. In consumer, we see what we believe is a temporary oversupply among our primary TV tuner customers. We anticipate second-quarter non-GAAP gross margin will be approximately 60% plus or minus 50 basis points.

In Q2, we expect our non-GAAP operating expenses to increase to around $73 million due to higher tape out costs, hiring and a full quarter of Bluegiga’s operations. Our non-GAAP effective tax rate is expected to be stable at around 15%.

We estimate second-quarter non-GAAP EPS will be in the range of $0.50 to $0.56 per share and GAAP EPS will be in the range of $0.11 to $0.17 per share. Now, I’ll turn the call back over to Tyson..

Thanks John. We are very pleased by our strong start in what was typically a seasonally down quarter and by the progress we have made over the past year.

Our momentum is increasing in target growth markets and our Q1 revenue grew by more than 12% year-on-year driven by the growth in our IoT, infrastructure and Broadcast automotive products; all of which delivered double-digit growth year-on-year.

Our Internet of Things products represented 37% of first quarter revenue, growing 26% year-on-year and establishing a new record. Successful IoT solutions require energy efficiency, connectivity, integration and simplicity.

Silicon Labs is uniquely positioned to provide these ingredients with our ultra-low-power MCU’s, our diverse portfolio of wireless connectivity solutions and our ability to integrate all these capabilities into system-on-chip implementation backed by software tools that greatly simplify the design process.

Our strategy is to target the heart of the system, the SoC and to ultimately control the integration path. Finally, we've invested in a robust distribution channel to efficiently connect with many thousands of customers in the low touch (ph) [wing].

The ability to support a wide range of wireless protocols is especially important in designing connected devices for the IoT. Bluetooth Smart is the most widely used wireless protocol for power sensitive personal area networking applications such as wearables.

According to IHS, Bluetooth Smart will represent 42% of the total low power wireless unit volume in 2018; during Q1 we acquired Bluegiga to accelerate our Bluetooth Smart roadmap and to enhance our IoT solutions with the adoption of Bluegiga’s model strategy.

This opportunity represents incremental SAM for Silicon Labs and adds to our industry leading connectivity portfolio including ZigBee, Thread, and sub-Gigahertz.

Less than a month following our acquisition of Bluegiga we announced our new portfolio of Blue Gecko wireless SoC’s embedded modules, software stacks and development kits for the Bluetooth Smart market which addresses the largest fastest growing low power wireless connectivity opportunity in the IoT.

Our new Blue Gecko portfolio will provide developers with a rapid on ramp to the IoT and flexibility to begin development with modules and transitioned SoCs with little to no system or software redesign.

The first in the family of multiband multiprotocol wireless MCUs optimized for the IoT, our Blue Gecko SoC solution provides industry leading energy efficiency and superior RF sensitivity with the best in class Bluetooth Smart software stack to help developers reduce power, cost and time to market.

In Q1, we also introduced the ECR-32 family of sub-Gigahertz wireless MCUs delivering an unmatched combination of energy efficiency and RF performance for applications ranging from smart metering, to the connected home. Turning now to the MCU market, we see strong demand for 8-bit and 32-bit products at a wide range of applications including the IoT.

Leading MCU vendors are advancing power efficiency and integration features of 8-bit solutions to meet market opportunities. According to IHS the 8-bit market will grow from $6.7 million in 2015 to $7.6 billion in 2018 comprising more than a third of the annual MCU market revenues.

In Q1, we launched our new EFMA MCU family which includes three lines of highly integrated peripheral rich 8-bit MCUs optimized for exceptional price performance, ultra low power touch control and USB connectivity.

Our MCU customers embrace our proven pipelined 8051 core mix signal integration and peripheral mix and developers appreciate how easily they can get their 8-bit designs up and running with our simplicity studio development environment while meeting very tight power cost and footprint constraints.

Moving on to infrastructure, our timing and isolation products grew 25% year-on-year representing 19% of our Q1 product revenue.

Timing is a strategic area of investment as we enhance our high performance frequency flexible portfolio to meet the stringent demands of core network applications and demand expand into data centers and wireless base stations.

First quarter timing revenue exceeded expectations by establishing a new record and growing 20% year-over-year driven by strength in our telecom customers. We have delivered a strong pipeline of new timing products over the last six months to nine months resulting in a strong market traction and design win activity.

As the communications market transitions the higher bandwidth networks to demand for advanced timing technology is increasing, we have significant market share with Tier-1 customer in high speed applications such as the 100-Gig networks and as this technology shifts from long haul to metro networks we expect share gains to follow.

Our Isolation products established record revenue in the first quarter growing almost 50% year-on-year, Isolation products are gaining traction in infrastructure whether they are used in power supplies for high speed switches, servers and base stations and also widely deployed in industrial automation and green energy applications.

In broadcast revenue from our consumer and automotive products was 28% of first quarter product revenue. Broadcast automotive set a new record in Q1 reflecting growth of more than 60% year-over-year.

We expect broadcast automotive to set another record in Q2 as we continue to gain share driven by Tier-1 design wins and growth in Europe, china and North America. As a leading tuner supplier for broadcast with more than 1.4 billion radio on chip ICs shipped to date.

Silicon Labs is committed to helping automotive OEMs, and Tier-1 suppliers, enhance the performance of car radio infotainment systems while reducing cost and complexity.

In Q1 we introduced our new family of AMF and receivers and digital radio tuners which raised the bar for radio reception and provide a complete platform for developing scalable systems for the global infotainment market ranging from entry level car radios to multi-tuner multi (ph) [intended] designs.

Reflecting back on Q1 we had a great quarter filled with a lot of good news. Our growth products delivered record revenue; we completed another successful acquisition rounding out our wireless portfolio.

We received first silicon and the industry’s first multiprotocol multiband IoT SoC which we announced for the Bluetooth Smart market with a working demo at the Embedded World Conference and we launched 10 product families in Q1, bolstering our pipeline of solutions for the IoT infrastructure and broadcast markets.

We continue to receive positive feedbacks from our customers and ecosystem partners that we are on the right track with our IoT strategy, delivering energy efficiency, connectivity, integration and simplicity to developers need to bring their innovations to fruition.

Clearly the IoT has driven this momentum and we believe the best is yet to come as we expand our SoC platform and software solutions. Thank you for your time and attention. Before we take your questions I’ll turn the call back to Jalene. Jalene..

Thank you, Tyson. Before we open the call for question-and-answer session I would like to review the Investor Conferences we will participate in this quarter including B.

Riley & Company's 16th Annual Investor Conference in Hollywood on May 13, Stephens’ 2015 Spring Investment Conference in New York on June 2; and William Blair's 35th Annual Growth Stock Conference in Chicago in June 9. Lastly please note that Tyson’s keynote addressed from this year’s Embedded World Conference is available on YouTube.

I have provided a link in the investor relations section of our website at www.silabs.com. We would now like to open up the call for your questions. To accommodate questions from as many people as possible before the market opens, we ask that you please limit your questions to one with one follow-up..

[Operator Instructions]. Your first question comes from the line of Harsh Kumar from Stephens. Your line is open..

Yes, hey guys first of all let me say congratulations these are spectacular results in light of what we are seeing in the industry with everybody missing numbers. So congratulations.

Quick question for you, could you just clarify for us in IoT, what are some of the largest end markets for you company?.

Yes Harsh this is Tyson, if you look at the largest markets for IoT you have got things traditionally for us have been like metering, so smart metering energy meters, water meters, gas meters, heat allocation cost meters, you have got things like wearables so all of the wearable devices, we have good traction there with our microcontrollers.

Home automation and security actually those are really two separate areas that home automation area is quite hot right now and you have home automation and security systems being rolled out by a lot of the MSOs as well as the retail channels.

And then you just have a broad range of industrial applications, everything from supply chain, RFID, shelf labels you have got factory automation applications. So really I think of the IoT is thousands of different applications, but those are some of the larger ones that we see ramping into the market today..

Hey I appreciate the color Tyson and then one more for you in infrastructure do you feel that this is a real turn that is sustainable for several years or is there something going on that maybe is one-time related here, just any color would be appreciated..

Harsh we’ve had good design win traction for both our power and isolation products and our timing products over the last number of years. And both of these markets tend to take a little, while to ramp into production, so we’ve had visibility into the strength of the design win traction there.

And we believe that this is an indication that that design win traction is taking hold despite the fact that the markets are not necessarily in particular the communications market is not necessarily as strong as we would like it to be and it’s been in a fair with weak state over the couple of years.

So we believe that this growth is an indication of share gains and we believe that those share gains was sustainable going forward..

Hey guys congratulations again I’ll get back in line..

Your next question comes from the line of Suji De Silva from Topeka. Your line is open..

Hi guys and hi John congratulations on the results.

Can you guys reveal the growth rate you’re expecting particularly for IoT and then some of the other areas timing, power, just to understand how the overall growth of the firms track?.

Certainly Suji, this is John. We’re seeing an attractive growth rates in the Internet of Things and infrastructure markets and we think double-digit performance is sustainable in those markets in particular. In the broadcast area we think the automotive product category can continue to gain share and certainly post our solid double-digit growth.

On the consumer side, it’s more of a stable situation with substantial market share having been realized here and of course we indicated it down indication for Q2 and in access that’s been a slow decline for us we’ve anticipated roughly a 5% to 10 decline annually for access we did better than that in 2014, but we’ll maintain that view going forward here..

Great and the other question I have is in the prepared remarks you talked about supply chain transitions impacting. Can you start by for the gross margin impact there near-term longer term and what those are the clarify that. Thanks..

Certainly yeah we don’t anticipate gross margin effects there really this was just some transitions related to fabs where the availability of supply see things so we needed to accumulate a little more stock to assist our customers with the transition. But we do not foresee a gross margin impact from that..

Great thanks guys. Congratulation again..

Your next question comes from the line of Craig Ellis from B. Riley. Your line is open..

Thank you very much for taking the question. And I’ll echo the congratulations on the fine performance. And the first question is on the infrastructure business.

As we look at re-segmentation of what was the broad based portfolio into IoT and infrastructure? Is there anything that’s changed with the infrastructure components their strategy from an end market or a product roadmap standpoint?.

Craig this is Tyson, the if you look at the infrastructure category within that we’ve combined our isolation products where the majority of the revenues coming out of communications type applications power supplies that has those have a broad range of applications.

And that’s been an important investment area for us for the last number of years no change in strategy there going after the power markets in lot of served by off the couplers and we have some very distinct technology there that we’ve developed and that has been gaining share over a long period of time.

So no change there we wanted to maybe highlight it a little bit more given the fact that it is reached a significant scale and then on the communication side our timing business again delivered a record quarter in Q1 is doing very well in particular in the high end applications.

And so the strategy in timing as we’ve indicated in the past has been to focus more on those higher end applications where we believe the margins are very strong and where we have some very differentiated technology.

So I would say that on the timing side we have refocused our strategy around the high end and reemphasized some of the low end applications, which we believe is the prudent set of priorities if you really look at the business..

That’s helpful Tyson, thank you and I’ll just stay in the same area with the follow-up question. There’s been - from broader semiconductor companies signs of demand weakness. I think it’s more on the base station side, but I believe the company, historically, has had some exposure there.

As the company saying anything in that regard or is mix really away from that type of application and with the high-end focus really catching things that are seeing strong order currents versus what some others are seeing right now?.

Yeah, the revenue that we have in our timing area is dominated by core network applications and we see strong ordering patterns. You know no indication of weakness, to date, in that area. We do have some traction in wireless base stations, but those types of wins have not yet materialized in terms of revenue.

So, we see pretty strong traction with wireless base station customers with our next generation of products, but have not yet seen that in the ordering pattern, so I couldn’t really comment on that, but going forward we think that’s going to be an important component in the growth of this business..

Thanks and good luck..

Thank you..

Your next question comes from the line of Anil Doradla from William Blair; your line is open..

Hey guys, just building up, Tyson, on that question on the timing, so it clearly seems that you guys are gaining quite a bit of strength on the core networks, but you are seeing some weakness in the base station.

Is that a fair way to characterize it and when you look forward, what do you think your visibility is beyond a quarter out on that timing segment?.

Anil, this is Tyson just following up on the previous answer with Craig. We don’t have a lot of business, today, in the wireless areas, so I can’t really comment on weakness in the base station area, but that would not have a material impact on our revenue in the second quarter.

Just in terms of the overall visibility into the second half and really all I can say is that the, you know, our design win traction has been solid and the ordering patterns of see here in Q2 as being healthy, you know, looking out into the second half, I really can’t comment on that any further at this point..

Okay and Tyson, you know, I think, last quarter when you’re talking about Broadcast audio for the year-end, you gave a sense that it is going to be flattish.

Do you still that - especially on the nonautomotive side, do you still believe that’s going to be the case or do you think it’s going to be down, maybe 5%, 5-10% and this is all TV really?.

Right, so, you know, typically in Q2 we would see a lift on the consumer side due to seasonality. We are not seeing that this year.

We had a reasonably strong first quarter, but in the second quarter in particular with some of our Tier-1 video customers we see an oversupply situation in their channel and a slowdown in ordering patterns in Q2 indicating that we really didn’t have very good sell-through into the channel in the first quarter.

I think, given some of the currency affects that are happening in Europe with the stronger dollar driving price increases and the resulting slowing sales of TV tuner or TV models there and our exposure to those models both from an ASP standpoint, a content standpoint, and just from a sharer standpoint being a little bit higher in Europe.

So, we see some slowdown in the consumer area, really isolated to our Tier-1 TV customers. So, I think that, I do know how the second half of the year is going to play out.

You know, it really depends on the seasonable sell through in the second half, but you know, I would think that given that Q2 is slowing bit and we need to burn off some inventory that the consumer business, this year, will probably be a little bit down compared to what we have thought a quarter ago..

Great and by the way congrats once again; fantastic results..

Thank you..

Your next question comes from the line of Ruben Roy from Piper Jaffray. Your line is open..

Thank you. Tyson, congratulations on the strong results and outlook.

In terms of the reclassification of your segments; looking at the IoT segment, can you talk about specifically the MCU’s within that segment 8-bit and 32-bit and, sort of, what the mix is today and what you would classify as IoT versus more traditional embedded markets and when you talk about kind of the longer term growth double digit growth expectation how that divides between those two areas.

Thank you..

Well thanks for the question Ruben, the IoT category comprises all of our microcontroller, wireless connectivity products including the Bluegiga and our sensor products and there are some analog products in there as well that are geared towards power management.

Within the microcontroller area we have 8-bit microcontrollers which has been business that we've been in for well over a decade and that business comprises - it is on in the range of about $100 million.

And it’s been a I would say a single digit growth engine the last few years for us and you will notice that we just recently introduced our EFM-8 bit product family we have actually been investing in our 8-bit business unlike a number of the competitors and we believe that will be a nice growth business for us, but probably in the single digit moving into the double digit range as we move forward here in the next few years.

The 32-bit area, our EFM-32 products, the Gecko products most of which we acquired through the acquisition of Energy Micro two years ago, those are growing very fast, we set a record revenue quarter pretty much every quarter going back if I look at those product this was a record revenue quarter and that is going back as far as the chart goes to last year.

So we have been ramping those products into a number of low power applications and believe that that business stands to continue to gain share it is also an area of heavy investment for us as the company has been built on a next generation portfolio taking the energy efficiency to the next level as we introduce our next platform both as microcontrollers and as microcontrollers integrated with wireless.

So in terms of the microcontroller mix it is heavier biased towards 8-bit today but with the 32-bit being a much faster growing segment for us it is really important for us, but our overall belief is that the 32-bit market takes a lot of the higher functionality but the 8-bit market is a place where our mix signal technology and our capabilities can really help us gain share there.

And it is a very, very large opportunity for us as well..

Thanks a lot for that detail Tyson. That’s really helpful. Just as a quick follow-up for John on the OpEx you talked about higher tape outs in Q2 any sort of directionally longer team outlook as it relates to tape out are you expecting further tape outs in the second half of the year, how should we think about OpEx, thanks John..

Yeah Ruben certainly we do expect further take outs in the second half of this year and really have no update or new information on the OpEx view we had indicated up about 9% back on the January call for the year and have no updates to that information but certainly as we continue to build out the IoT portfolio in particular we are going to have more take outs come..

Got it, thanks John..

Your next question comes from the line of John Vinh from Pacific Crest. Your line is open..

Hi good morning and thanks for taking my question, just housekeeping question on the IoT business can you breakout or talk about what the Bluegiga contribution in the quarter was?.

Yes John if you go back this is John Hollister, we have given mostly around $3 million to $4 million and we were near the top end of this, so it is just under $4 million and John that was two months of Bluegiga contribution in Q1, so moving through the remainder of the year we will obviously have a full quarter Bluegiga contribution in Q2 and throughout second half..

Got it thank you and then my follow up for Tyson, Tyson in your prepared remarks you talked about seeing strength in the industrial markets and I think your commentary is pretty consistent with many of your peers in Semis there has been a little bit of (ph) [consonation] as you look at some of the end market companies in industrials that are starting to see a little bit of a slowdown there can you give us your perspective on what you are seeing in the industrial market and if you have any thoughts on how to reconcile what we’re seeing in semi industrials versus what we’re seeing with industrial companies who are starting to see a little bit of slow down there..

Yes. We’ve got a couple different components of our industrial revenue. We’ve got our isolation power products, where we’ve seen significant ramps in power supplies in motor controls, a lot of factory automation applications. And the ordering patterns there I would say are healthy, but it’s buried a bit in a number of product ramps.

So it’s a little bit hard for us to separate out the cyclical component of that. On the IoT side, we have a lot of traction on the industrial side of things like the metering; things like home security and automation are all there. And again we’ve got significant ramps ongoing with a number of customers within that space.

But even if I look at the border microcontroller business, we see healthy ordering patterns there with the sole point of visibility that we have in terms of weakness really focused on the consumer area in video, in some of Tier-1 customers.

So I would say that from a market stand point it’s a combination of design win traction and growth layered on top of fairly normal ordering patterns that we see at this point..

Great. And then, last question from me. John, you talked about Channel inventories being 51 days, what do you anticipate Channel inventory to be in the next quarter. Do you expect them to grow or stay flat? Thank you..

Yes. I would expect likely flat or perhaps slightly or up. I mean, if you look at the day’s calculation right now it’s up a bit, but that’s to be expected with a business where we have anticipate continued growth. So we think this all pretty normal..

Great. Thank you..

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

Hey thanks for taking my question.

I just want to ask now that you’ve had a partial quarter of Bluegiga under your belt, just as you look out in terms of their existing customers being able to continue to support them and then just the timing of bringing your own products within these modules, when do you think you will be in the market there?.

Yes, Blayne. This is Tyson. In terms of supplying the existing modules, we don’t believe that there is any issue in being able to procure components from our partners in that area, and we so believe that that will continue without interruption.

And we’ve already designed and are in the process of putting into production module using our Blue Gecko SoC, and so that will be sampling out to customers shortly. And we also will be introducing other components within the module family in introducing additional new products from Bluegiga, as we march through the year.

So within Q2, we will have launched and released a product using our own silicon with the Bluegiga brand as well as the Blue Gecko software stack for Bluetooth Smart and that’s a very exciting opportunity for us in terms of that differentiation that Silicon gives to the Bluegiga module, as well as the entry of Silicon Labs into this Bluetooth Smart market, where we believe the revenue ramp there will be completely incremental to our SAM and its very exciting market in terms of the growth and the variety of applications where you are connecting device is in the handsets and really those types of application value are low power or wireless integration and performance and the features that they we’re able to deliver..

Great. And I just wanted to ask you about the declines in consumer.

You talked about inventory in video, if you could give any idea how to quantify that and are you seeing any changes in pricing or is it purely a unit so or here and then I guess, the same kind of question with the audio side, is it purely demand destruction with the euro or are you seeing also inventory in that channel as well. Thanks..

This is really confined to the video area, and to our top tier customers there.

You will see some of the reports coming out of the Tier-1 TV makers indicating that sales were down in Q1 and that there is some indication but then it’s not an area that margin or a share gain or loss issue, it’s really just a matter of the sell through in the end channel.

We believe that during Q2, we will work that off and our hope is that as we return to the second half, then we will see more normal ordering patterns but there is nothing in terms of the change in our pricing or our market share there that is really the source of the issue.

On the rest of the video market we have a number of ramps and actually see that as reasonably healthy and we also see in the audio space actually very good performance in Q1 and good ordering patterns in Q2 as well.

So in the consumer audio we don’t really see the impact of the European situation, but that could be due to the share gains going on in that area, but that’s a small contributor compared to the consumer video piece.

And then on the automotive side we’ve seen very strong growth, 60% year-on-year growth and continue to ramps with Tier-1 customers on our car radio. And that’s offsetting some of the weakness on the consumer side..

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

Yes thank you and congratulations to the team on getting the Bluetooth Gecko so quickly. My question is on that product when would you expect to start getting revenues from the Blue Gecko SoC and then also the SoC included in the module.

And should we think of that as being an accretive event to gross margins or is it not going to be enough to change the gross margin and mix at least not in the near-term?.

Hey Tore this is John yeah we would expect the Blue Gecko SoC product to begin generating revenue sometime next year as we productize that later this year and really to market and began to earn design wins late in the latter part of this year and early next year.

As far as the margin I would expect that to be relatively consistent with our overall margin profiles of course it will depend on the exact application and volumes so on but don’t expect that to have a significant impact on the margin..

Very good as my follow-up had a question for Tyson in your investor presentation the new one you have on your website you have a pretty nice drawing there when it comes to the IoT SoC and it seems like a simple drawing but obviously there’s a lot of complex technologies that go into that SoC.

So just from a competitive advantage perspective and you obviously have all the building blocks now.

How big an advantage do you think you have now ahead of some of the other potential competitors and the IoT market?.

Thanks for the question the that drawing does it does look a little bit simple, but there’s a lot that goes into integrating all these components you got really the difference between the technologies that go into a handset where you got multiple chips and each chip optimized for a specific functions things like RF power management the various memories all of the interfaces.

And control interfaces those all have to go into a single chip of presentation and so it’s really the integration of RF with the microcontrollers with the memory with the power management and that is something that Silicon labs is just really, really we have a strong history of doing that and standard CMOS technology we were one of the pioneers in RF CMOS technology back in the late 90s and today RF putting wireless into CMOS represents over 60% of our revenue with our wireless connectivity portfolio, but all of our broadcast all the success we’ve seen there and all of our timing products are all based on high performance RF CMOS technology.

So we believe comparing to the traditional micro controller companies that have been more analog and digital integration that we have an advantage and being able to put wireless in a very, very high performance cost effective way into the same chip as a micro controller and I believe that that’s one of the key points in being able to build a successful IoT business.

And I’d add that on top of that you also have to the IoT is going to be thousands of different applications tens of thousands of customers that we have to serve. So you have to build these SoCs in a way that are very general purpose.

You have to have a complete portfolio of products and the tools and the channels with which to get them to market and to be able to scale efficiently over both the R&D side and on the sales side is really important and I think that we’ve got this is something that we’ve been targeting for the last five years and I think just if you look in terms of the strategy and in terms of the execution on that strategy, I think we’ve got a several year lead over what other companies have been able to put out into the markets today.

So, this platform is coming out. The Blue Gecko is the first of a family. Is really the embodiment of that strategy as well as the strategy that we’ve undertaken from an M&A perspective with Ember, with Energy Micro, and now with Bluegiga; and we finally see this all coming together..

Thank you Tyson and again, congratulations on the results..

Thank you..

Your next question comes from the line of Matt Ramsay from Canaccord Genuity. Your line is open..

Good morning. Thanks very much. Tyson, just the stepping back a little bit, I would like to get some of your perspectives. Obviously, you guys have done very well in the IoT business. There’s been as a tip event these days; they’ve got M&A transactions that have gone on. You guys have participated in some.

There’s been some very large ones on the NXP/Freescale deal in particular.

Any comments you have on the competitive landscape from that perspective? Any things that you might make a change or help your company or maybe provide more competition to your company as a result of some of these big deals, particularly in the ARM/MCU space?.

Right and certainly the NXP/Freescale deal was a big one, both competitors in the microcontroller space. I would say that the wireless component of both of their businesses was –we don’t view them as the primary competitor on the wireless side at this point.

Certainly, the larger scale may enable them to afford larger investments in this area, but I believe that the integration challenge there is going to actually provide an opportunity for us to be able to gain share.

You know, we’ve certainly seen companies like CSR go in with Qualcomm, but, again, we believe those companies being more vertically oriented and not actually having a whole lot of success in a lot of these IoT applications. Again, not viewing them as a primary competitor, but, again, over time with the scale of a large company like that.

So, I think, from a market leader perspective and a market traction perspective, given the significance of this revenue, you know, 37% of our revenue coming out of this area and the focus that we’d have from an R&D and a strategy perspective, we believe that we’re very well positioned against the larger companies.

I also just want to comment that a lot of the microcontroller companies have acquired wireless assets. You saw Atmel buying Newport Media and there’s other examples of companies licensing of bringing in wireless technology.

I think that it’s a very subtle point, but being able to integrate wireless together with microcontrollers, you have to be in the same process technology as you microcontroller, you have to have the flash memory integration, and you have to figure out how to make all of the wireless connectivity work in the presence of all that processing going on.

That’s something that companies like Broadcom and Qualcomm and Silicon Labs have been very good at. The companies that have really looked at and gone after high-volume markets like cellular where it’s much more complicated.

If they’re in different technologies, it’s very complicated to put them in the same technology and if you haven’t done those together before, you’ll be running into a lot of challenges when you move forward in the execution and thus something that I think we’ve figured out over time and have a lead in as well.

So, it’s really, at this point, all about execution of our strategy, getting out the portfolio, getting out the products, and going out and taking market share. I think that the markets are going to be growing very fast and there’s going to be room for a lot of players. We think that we’re going to be able to take our fair share..

Thanks Tyson, that’s a very helpful perspective. As a follow-up, I wanted to ask on the Broadcast business. Obviously, there’s two different components to that business right now, the TV tuner stuff and some of the near-term challenges you might have mentioned there from an inventory perspective and also the really strong automotive business.

I discovered two small questions there. First, could you maybe quantify the automotive as the mix in Broadcast today, and second, as auto continues to grow, is it possible that –.

What was the second part of that, quantify the broadcast automotive and second piece?.

And the second piece is just code that business return to the growth and [Indiscernible]?.

I think he drops off. Let me try to try to answer this. In terms of the mix between automotive and consumer, today, it’s at about 25% automotive, 75% consumer; with the automotive piece certainly growing very, very fast and John may be you could comment on the consumer pieces..

Sure on the consumer side the video part of the consumer business is the largest component with more than half of the business being on the video side..

Your next question comes from the line of Ian Ing from MKM Partners. Your line is open..

Yes thanks.

So for broadcast automotive line what is your penetration rate at this point and what you think you can get to?.

Yes Ian if you look at the markets for automotive infotainment we believe that the total market size is between $300 million and $500 million with ST and actually – having a largest share there.

We have probably still we still have on the order of high single digit market share in this area, we just introduced our brand new next generation platform last quarter with multi standard reception capability built in audio processing and some very interesting specs and features across that address a wide range of the infotainment market.

So we think that as time moves on we are going to continue to be able to gain share and continue to grow that mix both on the back of this new platform as well as the Tier 1 traction that we have had so far and the desire these companies to bring in a new innovative supplier that can bring some new technology as well as competition into the market..

Thanks and my follow up you talked about TVs in your could you talk a bit more about European chip sales and currency implications how that can play out, I think you have got some exposure with Isolation in the industrial markets you have got Bluegiga and Energy Micro serving some regional customers also thanks?.

Right from a non-TV standpoint we have not seen any indication of softness in our customer activity both from a design win or ordering patterns so well we have some exposure to Europe, it is on the order of quarter of the overall company’s revenue coming out of Europe we see good interest I mean from an automotive standpoint and industrial standpoint coming out of our European customers, in fact that is one of our strongest regions in Q1 and Q2 in terms of growth outside of course of the consumer type of areas.

John do you have anything to add to that?.

No, no. Not particularly I mean the only thing I would add is clearly we are aware of some of the weakness that we see among many of our semiconductor peers and we will continue to monitor our build plants and watch the market overall as we march forward in the year, but apart from that I don’t have anything to add from what Tyson said..

Your next question comes from the line from Ryan Goodman from CLSA, your line is open..

Hey thanks for taking the question and congratulations on the quarter, and question on the access business I mean that business keeps performing better than guided, I think it has been about four quarters in a row now, so I guess first question would be what is helping to keep this business tracking so well and then second you are guiding it flat for Q2, but you are kind of sticking with this down 5% to 10% for the year, just doing the math that seems to imply pretty steep drop in the second half.

So just curious why you are taking such a conservative stance there?.

Yeah Ryan this is Tyson, we are seeing strength in our voice over key business our – business subscriber line interface where we are delivering phone service to the home and this is the set of shifts that provide that line termination.

That business has been very strong for us the last three quarters and our anticipation is that our share has grown somewhat in that space and so that we see health in that business.

We also see the modem business has held in steady, but we also anticipate a steady decline in the modem business just we have seen over time and so that is really the source of our conservatism in terms of the overall business declining, overall from a long term standpoint we believe that the modem business will continue to step down each year.

And just if you look on year on year basis that we still continue to believe that that is the case..

Yes..

Our final question comes from the line of Latif Malik from Citigroup. Your line is open..

Hi Tyson congratulations on a good set of numbers and also breaking out IoT segment for us. John, if I look at your gross margins in the middle 59 to 61% target model that’s 6% if I think about the IoT bucket.

What are the gross margins for that bucket as the IoT mix improves for you? How should we think about the gross margins may be improving from the long term target model?.

Yes. The IoT bucket is roughly in line with the corporate average in terms of margins. So we would expect the growth there to really be consistent with our model.

Having said that we’re going to be competitive in this space and we’ll be winning share as well, but overall, it should be in line, the two key variables for us in terms of margin are the infrastructure products which are above the average and they broadcast automotive.

So going forward, you will hear us talk about those elements really more moving the needle on the margin performance..

With the consumer markets being somewhat below the corporate average, yes, being in the account balance to that, yes. End of Q&A.

We have no further questions. I would now like you to turn the call back over to Jalene Hoover..

Thank you, Ryan and thank you everyone for joining us this morning. This concludes today’s call..

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