Jalene Hoover - Head-Investor Relations John Hollister - Chief Financial Officer George Tyson Tuttle - Chief Executive Officer & Director.

Tore Svanberg - Stifel, Nicolaus & Co., Inc. Craig A. Ellis - B. Riley & Co. LLC Harsh V. Kumar - Stephens, Inc. Joe Hodes - William Blair & Co. LLC Ryan C. Goodman - CLSA Americas LLC Amanda M. Scarnati - Citigroup Global Markets, Inc. (Broker) Ian L. Ing - MKM Partners LLC Joshua Buchalter - Needham & Co. LLC Blayne Curtis - Barclays Capital, Inc..

Good morning. My name is Shannon and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs Fourth Quarter 2015 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

I would now like to turn the call over to Ms. Jalene Hoover. Ms. Hoover, you may begin your conference..

Thank you, Shannon. Good morning, everyone. Thank you for taking the time to dial in. Tyson Tuttle, Chief Executive Officer; Bill Bock, President, and John Hollister, Chief Financial Officer are on today's call. We will discuss our financial performance and review our business activities for the fourth quarter and full year.

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 www.silabs.com. This call is also being webcast and a replay will be available for four weeks.

Our comments today will include forward-looking statements or projections that involve substantial risks and uncertainties. We make these forward-looking statements on information available to us as of the date of this conference 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 in our business, operating results and financial conditions.

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. In addition, 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 fairly highlight the results of core ongoing operations. I would now like to turn the call over to Silicon Labs' Chief Financial Officer, John Hollister..

Thank you, Jalene. We are pleased to announce positive financial performance for the fourth quarter, with top-line revenue ending near the high end of our guidance range at $160 million. Our non-GAAP EPS exceeded the high end of our guidance at $0.63 per share.

Total fourth quarter revenue was up 2% sequentially, led by upside in IoT, as we ramped new programs in our 32-bit MCU platform and continue to gain momentum in wireless. Q4 IoT revenue grew 3% sequentially, ending at $67 million or 42% of revenue. Infrastructure revenue was down 2% sequentially to $30 million or 19% of Q4 revenue.

We saw a tail-off in demand for timing products towards the end of the quarter, reflecting macro weakness with top telco customers and across all geographies. Isolation products, however, delivered another record revenue quarter.

As anticipated, we also posted solid results in Broadcast, delivering a 9% sequential increase to $40 million, or 25% of fourth quarter revenue. This was led by a rebound in Broadcast consumer combined with steady performance from our automotive radio products. Fourth quarter (04:11) Access revenue was $23 million or 14% of revenue.

This reflects a sequential decline of 3%, consistent with expectations. Looking at full year 2015, we delivered 4% (04:28) revenue growth, outperforming the semiconductor industry which was flat to slightly down in 2015 according to recent industry estimates. IoT established a new record, with revenue increasing 26% to $262 million.

Infrastructure grew 13% to a record $122 million, with solid performance from both timing and isolation. Broadcast product revenue ended the year at $162 million, declining 18%, with the second half softness reflecting weakness in consumer, which offset growth in automotive.

Access delivered 2015 revenue of $99 million, representing an annual decline of less than 1%, outperforming our expectations and driven by strong performance in the first half of 2015. Geographically, in 2015, our IoT, Infrastructure and Broadcast automotive products drove strong revenue growth in the Americas and Europe.

This was partially offset by a decline in revenue in the Asia-Pacific region due to weakness in Broadcast consumer. Looking at end markets, 2015 revenue from industrial grew to around one-third of our overall product revenue led by strength in IoT and isolation.

Revenue in consumer declined in 2015 to roughly one-quarter of our total revenue due to second half weakness in Broadcast. We also saw healthy growth in automotive, based on the strong performance from our radio products.

Turning back to Q4 results, fourth quarter channel revenue share declined slightly to 68%, primarily due to strength in Broadcast consumer. Year-on-year, channel revenue increased six percentage points with solid performance from our IoT products. Fourth quarter non-GAAP gross margins ended soft at 59%.

This was driven primarily by a mix shift from Infrastructure to Broadcast consumer. Looking forward, we expect a recovery in non-GAAP gross margins as Infrastructure resumes growth. Non-GAAP operating expenses were favorable in the fourth quarter, ending at $68 million which was about flat to Q3.

R&D expenses were $37 million, and SG&A expenses were $31 million. Q4 non-GAAP operating income increased slightly to $27 million or 16.6% of revenue. Due to revenue upside and favorable OpEx performance, non-GAAP earnings per share ended above the high end of our guidance range at $0.63.

This includes the full benefit of the recently enacted permanent R&D tax credit, which drove $0.11 favorable EPS impact for the quarter. On a GAAP basis, fourth quarter gross margins were 58.4%, Q4 R&D expenses were up slightly to $47 million, SG&A expenses increased to $41 million on higher stock compensation expenses and M&A related charges.

GAAP earnings ended the quarter above the guidance range at $0.13 per share. Overall, our balance sheet remains healthy. We ended the year with cash and investments totaling $250 million.

We are pleased with our 2015 capital deployment execution, putting approximately $168 million to work, in the form of share repurchases and investments in M&A, including two accretive deals, Bluegiga and Telegesis. Our operating cash flow for the year was a healthy $105 million.

We ended the year with $78 million of debt, and have over $400 million of incremental borrowing capacity with the mid-year refresh of our credit facility. Accounts receivable ended at $74 million or 41 days outstanding, and inventory at $54 million or 4.9 turns.

CapEx in 2015 was approximately $11 million which is a reasonable level for our operations. I will now cover first quarter guidance. We expect first quarter revenue to be between $157 million and $162 million or approximately flat with Q4, with growth in Infrastructure, offset by a decline in Access. We expect that IoT and Broadcast will be flat.

First quarter non-GAAP gross margins are expected to recover with a more favorable mix to approximately 59.5%. We estimate that our Q1 non-GAAP operating expenses will increase to $73 million, with $3 million seasonal increase in fringe, combined with merit increases and an expected increase in tape-out expenses.

Looking ahead at the full year 2016, we anticipate that our operating expenses will increase by around 5% annually, with the addition of Telegesis, higher tape-out costs, general cost inflation and some continued modest organic hiring.

With the benefit of the permanent enactment of the R&D tax credit and estimates of the geographical mix of taxable income, we expect that our non-GAAP effective tax rate for Q1 and 2016 to be approximately 12%. This is a significant improvement from just a few years ago when we were in the low 20%s.

We estimate first quarter non-GAAP EPS will be in the range of $0.42 per share to $0.48 per share, and GAAP EPS will be in the range of $0.08 loss per share to $0.02 loss per share. Now, I'll turn the call back to Tyson..

IEEE 1588 packet network synchronization and wireless infrastructure, further increasing our SAM. Our isolation products delivered another record revenue quarter and year.

During the quarter, we introduced a new family of multi-channel digital isolators, providing robust protection against lightning strikes and exceptional reliability for demanding industrial and green energy systems.

Our digital isolation portfolio is ideal for applications such as motor drives, micro inverters, power supplies and battery management for hybrid and electric vehicles. Broadcast automotive continues to deliver record levels of design win activity, based on performance, scalability and integration.

We are supplying tuners to a number of top-tier European, Asian and U.S. car radio manufacturers, including OEM and aftermarket. We exited 2015 with about 10% market share and anticipate continued share gains in all regions to fuel revenue growth for these products.

I'm excited that Brandon Tolany has joined our management team as Senior VP of Worldwide Sales. Brandon joined Silicon Labs with 20 years of experience in the semiconductor and electronics industry, most recently serving as Chief Sales and Marketing Officer at Freescale Semiconductor.

Brandon will drive collaboration and engagement in the channel and with major customers to support revenue growth and market share gains in 2016 and beyond. I'd also like to thank Bill Bock for his many contributions over the past 15 years, and especially for his recent tenure as President.

We wish him the best and are thankful to retain his expertise on our board of directors. I'm also delighted to announce that Nina Richardson has joined our board of directors. Her entrepreneurial drive and diverse operations management and R&D experience are valuable assets to the company, as we continue to focus on new growth opportunities.

And finally, we ended the year winning the Global Semiconductor Alliance's Most Respected Public Semiconductor Company award for companies with $500 million to $1 billion in annual sales. It's a great honor to be chosen for this prestigious award by our industry peers based on our products, vision and future opportunities.

During 2015, we made significant progress in laying the foundation for our continued success as a leading supplier of silicon, software and solutions for the Internet of Things and Infrastructure markets.

Over the past 20 years, Silicon Labs has pioneered mixed-signal and RF technologies to enable a more connected world, delivering design simplicity to our customers, while improving lives and transforming industries.

This year, as we mark Silicon Labs' 20th anniversary, I've never been more excited about the many innovations and opportunities that lie ahead. Thank you for your time and attention. Before we take your questions, I'll turn the call back to Jalene.

Jalene?.

Thank you, Tyson. We would now like to open the call up for your questions. To accommodate as many people as possible before the market opens, we ask that you please limit your questions to one with one follow-up.

Shannon?.

Your first question comes from the line of Tore Svanberg from Stifel. Your line is open. Please go ahead..

Yes. Thank you very much. First question, Tyson, could you talk a little bit more about your multi-protocol radios? You talked about having one that integrates Bluetooth, ZigBee and Thread sampling at the Embedded Conference.

But could you talk a little bit more about what types of applications the multi-protocol radio would go into? And could this eventually even end up in a smartphone?.

So the multi-protocol radio allows you with a single piece of silicon and with a single antenna to run multiple standards. So for instance, using the same integrated SoC, you could run Bluetooth Smart, and use that to connect to a smartphone, and for instance, set up a device.

And then, the device could also then switch over and join a Thread or a ZigBee network. You could also run ZigBee and Thread at the same time, so you can imagine that that's very good in terms of backward compatibility.

You could run a sub-gigahertz protocol and ZigBee so that a manufacturer could have a device that would support their legacy protocols, as well as the more modern protocols like Thread or ZigBee.

You could also potentially have a device that can switch from one to another or that manufacturers can convert a design so they can have one version of the part that – one version of their device that is on ZigBee, one that's on Thread, one that's on Bluetooth Smart so they can use the same exact design and use that to enter multiple markets.

So there's a lot of reasons why the multi-protocol is handy. I would say that inside of a cell phone today, inside of a handset, you've got multi-protocol capability with Wi-Fi and Bluetooth. The types of devices that we are designing are really targeted at end devices for the IoT.

So not into the smartphone, you can think of the smartphone more as the user interface and an enabling technology, but the specific silicon that we're going (23:10) is not targeting mobile handsets..

That's helpful. And as my follow-up, could you talk a little bit about where we stand now as far as your module business continuing your own silicon? I think with Bluegiga, maybe you're already converted over, but with Telegesis, could you talk a little bit about where we stand on using your own silicon inside the module business? Thank you..

Yeah. So starting with Bluegiga, we have introduced solutions for Bluetooth Smart using our own silicon. Some of that revenue still uses other silicon inside, in particular, the Wi-Fi modules and the Bluetooth classic modules, but the Bluetooth Smart devices have switched over to our own silicon.

In the case of Telegesis, they are already using our silicon, so those modules contain our silicon already. And you can imagine that the roadmap for both Bluetooth Smart, Thread, ZigBee and other protocols will, going forward, use our own silicon and have a converged roadmap.

So there's an efficiency that's gained there, but for the most part, the modules and the roadmap are now using our silicon except for the legacy devices from Bluegiga..

Sounds good. Thank you very much..

Thank you..

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

Thanks for taking the question and congratulations on the nice results, guys. Tyson, the first question is more of a strategic question related to the IoT segment. The company has done a very good job with accretive acquisitions and organic initiatives driving real strong growth.

As the technology in that portfolio broadens, do you continue to see that the path forward is a combination of both inorganic and organic initiatives? Or does it lean more towards organic initiatives at some point?.

Well, I think that if you look historically at the company, we have mostly been an organic story. Since 2007, we've deployed over $1 billion into the markets, most of which has been share repurchases. We've acquired, over that timeframe, about $300 million worth of M&A.

So on a go forward basis, I think that we're going to continue our organic growth strategy. We have the technology that we need to compete in the markets, the microcontrollers, the wireless connectivity for low power, low data rate applications, some number of sensors.

That being said, we still continue to look for opportunities to expand the business through M&A, as we did this year with the module business, to bring on additional capabilities. We have significant financial capacity with which to deploy into an M&A transaction.

But that being said, we continue to be focused on our organic growth strategy and continue to be opportunistic on the M&A side..

Okay. Thanks for that. And then, John, just a clarification on the OpEx guidance.

Understandable that it's up given that you're layering in Telegesis, but can you identify what percent of the sequential increase in March of that acquisition would represent that $3 million quarter-on-quarter rise?.

Yes. Looking at the guidance quarter-on-quarter, it's about $5 million increase from $68 million to $73 million, Craig. The Telegesis addition is certainly less than 50%. Bear in mind, that at the beginning of the year, we reset our fringe costs that tends to roll off later in the year.

But the fringe reset, as I mentioned in the comments, was about $3 million of the change..

Thanks, guys..

Your next question comes from the line of Harsh Kumar from Stephens. Your line is open. Please go ahead..

Yeah. Hey, guys. You guys made an interesting comment on Infrastructure coming back. We're hearing that from a couple of companies, but also some mix stuff. Just curious if your Infrastructure pickup commentary is broad-based or specific to a customer or just any color..

Yeah. Harsh, this is John. It's really a combination. We have a very robust business with the Tier 1 telcos. And although we did see some weakness in the second half of the fourth quarter, we think that's relatively short-lived. And we see decent booking patterns as we begin the quarter here.

Of course, there's some uncertainty on that, but so far, the trends look positive, and we feel like the business has a good chance to recover here in the first quarter..

Okay, great. Thank you for that. And then maybe a two-part question as a follow-up. IoT is a pretty big chunk of your revenues now.

Should we be thinking there's any seasonality to that business given that there's a consumer angle to it? Or is it just in sort of a growth mode where it doesn't even matter for near to midterm? And then secondly, you mentioned you had a top 10 – you had two brand new customers that were top 10.

I was curious if you could tell us what kind of applications those were, or any angle on what end markets they serve?.

Yeah. So first, let me address IoT seasonality. There is a consumer component to our IoT business which is largely responsible for the fact that from Q4 into Q1 we're seeing flat. So the growth in other applications is being offset somewhat by the consumer seasonality. Overall, as a company, our consumer exposure is 25%.

Most of that is in Broadcast consumer. So the consumer exposure in IoT is significantly less than a quarter. Although the way you classify these – the way the SIA classifies the revenue, some level of things in the smart home are also seasonal. So those are not specifically in the consumer category.

But there is a degree of seasonality in IoT, although I would say that the growth, in general, should outpace any seasonality that we see. In terms of the top 10 customers, one customer is a metering customer and has been a long-term customer and has continued to ramp revenue with us. And the other one is in a home automation category..

Got it. Thank you for that color. Thanks so much..

Your next question comes from the line of Anil Doradla of William Blair. Your line is open. Please go ahead..

Hi. This is Joe Hodes in for Anil Doradla.

Coming back to the IoT segment, I know you said that there would be some weakness due to the consumer piece of that in March, but would you say you're still maintaining your expectations for 20%-plus growth over 2016? And can you give any specifics regarding those expectations?.

Yeah. So we grew the IoT revenue 26% in 2015 over 2014, and we've talked about our long-term growth in that area to be 20% or greater. If you look at the design win momentum that we have across the IoT portfolio, we see very, very strong growth across a range of applications.

So while we're not specifically talking about a growth rate for 2016, we do see a continued ramp through the year as these design wins turn into revenue..

Okay.

And then as a follow-up in the Broadcast segment, could you provide some color regarding the pricing environment for the Broadcast video and TV tuner side of the business? And then, are you seeing the strength that you had in this quarter as sort of a one-off, especially driven by your margin outlook for margins ticking back up?.

So in terms of pricing for Broadcast, we do see ASP declines from 2015 into 2016, which will be largely offset by an increase in market share. We believe we'll be able to increase our market share back at Samsung after the conclusion of the CrestaTech legal activity, as well as continued share gains in China.

And we do think that the Broadcast will be more consistent with the second half run rate. Q4 came back a little bit. Q3 was particularly low in terms of revenue due to the inventory correction that we saw at our leading Korean customers. But we will see pricing declines somewhat offset by ASP or by share gains in Broadcast.

In Q4, we did see Broadcast come back a little bit. We also saw some weakness in Infrastructure in the second half of the quarter, and that led to a little bit lower margins due to mix and we think that that mix will continue to improve here, as we get into Q1, and as we move through the year in 2016.

So we feel comfortable with our guided range of gross margins from 59% to 61% here in 2016..

Great. Thank you..

Your next question comes from the line of Ryan Goodman from CLSA. Your line is open. Please go ahead..

Hey. Thank you for taking the question.

First one, quick one, just can you tell us what the revenue contribution from Telegesis was during the quarter and what you're assuming in the guidance?.

Yeah, Ryan. This is John. It was a limited amount. We just closed the deal in late November. We haven't broken it out specifically, but it was a fairly modest contribution in the fourth quarter. And in the release that we issued when we did the deal, we indicated a range of $8 million to $10 million for 2016.

So that's the information that we've distributed about this..

Okay, great. And then, longer term, just more a strategic question. Now, the last two acquisitions you've done have both been kind of expanding the module capabilities in Bluetooth and now in ZigBee.

So just can you talk a little bit about what's behind the strategy there, what the plan is going forward? It seems like you take a small hit on the margins there, but it's giving you some decent TAM expansion.

So just curious how we should think about that going forward, if there's other opportunities to go into modules and some of your other business areas? Thanks..

So Ryan, our module strategy is really part of our overall goal to make our solutions easier to use for customers, and that is key to our ability to scale across a larger number of customers. Our customer accounts grew 20% last year.

And as you look at just the overall wide range of markets that we're attacking, to be able to scale revenue without increasing OpEx too much, we have to have easy to use solutions and modules are part of that. So with a module, a customer can solder that onto their board and get to market very quickly.

It's pre-certified, so they don't have to go through the regulatory approvals, and it simplifies the RF design on the board, which both makes it easier for the customer to use and also for us to support.

So if a customer is buying, for instance, $50,000 or $100,000 worth of parts a year, using a module may make more sense than doing all the RF design and the support, and it is far more scalable for us. So we have made a strategic decision to go in and do modules. We've done multi-chip modules in IC form for quite some time.

It's a very similar packaging flow to what we use on the IC side with the addition of an antenna and a crystal. And so, we felt like these acquisitions were bringing in those established businesses and customer bases made sense. The second reason for the acquisitions was really the talent that came along with those.

The module R&D is actually a very small part of those teams. They had significant application and software knowledge. So for instance, in the case of Bluegiga, they had a market-leading Bluetooth stack that had over a decade of history.

And we were able to run that software on our chip and then have their engineers move over and support our products and roadmap. So that was very synergistic with our SoC larger customers as well as the module customers.

And furthermore, as customers may start with the module design and then move to an SoC design later, we can make that seamless, both from a software standpoint and a customer relationship standpoint.

So being able to offer both modules and SoCs in a consistent portfolio, we see that as being easier for the customers, it gives us more visibility and makes it easier to move high-volume customers onto more cost-effective SoC on-board designs..

Okay, great. Thank you..

Your next question comes from the line of Atif Malik from Citi. Your line is open. Please go ahead..

Hi. This is Amanda for Atif. Just a follow-up question on IoT growth expectations for this year.

With one-third of the total business driven by industrial, how is the macro environment kind of changing the previous double-digit growth expectations? And could we see any changes in IoT if macro continues to kind of be a little bit weaker?.

So the macro environment, for IoT, remains mixed in terms of China and the overall economic environment, but we see the proliferation of connected applications growing dramatically.

So if you look at the applications of IoT technology for the embedded processing and wireless connectivity and that getting into a wide range of industrial and consumer applications, we believe that the overall market is certainly well outgrowing any sort of macro effects.

So whether industrial is down a little bit or up a little bit, from an overall economic standpoint, we think that the overall growth in the IoT market and the continued proliferation of applications will remain positive for the business and that's reflected in our design win trajectory and our revenue expectations as well..

Okay.

And then, on the TV business, the secular decline in TV units in China and just overall weakness in China, what if at all is the decision tree to exit the TV tuner business?.

Well, the TV business is one that we have a dominant market share where we're over 50% share. It's also a device that is not going to be integrated into another solution, so we believe that it is a long-term profitable business for us. We have moved the majority of our R&D into the IoT area.

So this business does generate good profits for us, and we believe that, from a revenue perspective, we're going to have fairly stable revenue performance from the second half of last year into 2016. So in terms of a profitable business and a sustainable business, we think that that is the case there.

And we do have leading technology and leading share. That being said, if it ever makes sense to consider strategic options, it's something that we would listen to, but it would need to make sense from a financial perspective..

Great. Thank you..

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

Yes. Thank you. Bill, first of all, best wishes on your future activities. We're never sure if it's final when it comes to Silicon Labs. So in aggregate, just your gross margins across your IoT portfolio, it seems like there's a lot of moving parts. Is there any trends here? I mean you've got industrial and consumer mix.

You've got big OEMs ramping their offerings in the second half. You've got modules versus SoCs, just seeing if there's a directionality of gross margins here..

Hey, Ian. This is John. As far as the gross margins, first of all, we're very pleased with our performance on margins for the year for 2015. We ended the year just at the midpoint of our overall model range with 59.9% margin for the year. There are some moving pieces, that's right.

We've got some higher performance products that command a bit higher margin, and then, with the module content coming up, that does come in at somewhat lower gross margins.

So we will see some degree of mix shift within the IoT category, but primarily, what we will see and talk about in terms of margin performance is the impact of overall mix across our major categories.

So higher Infrastructure mix will drive somewhat higher margin and vice versa, when that comes in on the lower side, you'll see the margins pull down a little bit. But overall, we feel good about the outlook for margins here in first quarter, and look forward to further cost reductions as we move through the year..

I also want to mention, Ian, that the margins on the modules, while below the corporate target, are not that far below. But also when you think about going into a module design from an SoC design, the gross margin dollars are higher per unit on a module.

So as you move from a module to an SoC at higher volumes, while you'll see a gross margin percentage increase, the module is always going to have a higher gross margin dollar content..

Thanks. And then, clarification on your Broadcast guidance of flat. Is that due to some CrestaTech related share gains? It seems normally that can be a seasonally down quarter in Q1. And also, you've got two quarters of upside to Broadcast expectations now.

What's the status of inventory at the Korean OEMs at this point, do you think, for TVs?.

Yeah, Ian. This is John. So what we're seeing in Broadcast is really a reasonable outlook here for first quarter, across both consumer and automotive, with consumer down a little bit, just a little bit, and growth in automotive offsetting that.

So that looks healthy to us, particularly in light of what is seasonally, typically a down quarter here in the first quarter. And we do think that the inventory situation at our major customers is in a more healthy state than what we experienced in mid-2015..

Okay. Thank you..

And your final question comes from the line of Rajvindra Gill from Needham & Company. Your line is open. Please go ahead..

Hi. This is Josh Buchalter on behalf of Raji. Congratulations on the results and thanks for taking my question. I was hoping to drill down a little bit more onto the IoT applications.

Could you maybe outline which areas you guys are seeing more success than your competitors, simply from an application standpoint? And I was hoping you could also talk about maybe the connectivity and security trade-off and what's kind of developing in that area of the business? Thank you..

Okay. In terms of IoT applications, we have a strong presence in the metering market. We sell to all of the top metering customers, and that goes into both meter reading, automated meter reading, and as well in-home monitoring. So those are – that's a significant area, and one of those customers is in our top 10.

We also have a significant position in the home automation market, broadly into both the retail channel.

So products that get sold directly to end customers, as well as through operators, through cable companies, phone companies that are bundling home automation services with other services, and we're providing the connected device, silicon inside a lot of the end node sensors as well as the gateways.

So home automation, security, we also have a significant position on the wearables side, where our low energy microcontrollers are used in a number of the leading wearable devices, and we also have a play on the sensors side in the wearables as well. We have a new heart rate monitor sensor that is quite well received.

So it's a broad range of applications. There's a lot of applications outside those areas.

There's a broad industrial automation, anything from supply chain to agricultural monitoring, really any sort of device that you can embed connectivity, our low energy solutions, our wireless connectivity, the integration level we can provide, the long battery life in our industry-leading protocol stacks and development tools are all helping to drive engagements across all of these.

And that's combined with the fact that we're also developing our solutions to be simple to use and to have a broad, scalable portfolio so that you can go from a high-end application to a low-end application and use a very – the customer can have a very consistent and easy experience using our products.

So that's some detail on the various applications for IoT..

Thank you. That's very helpful.

And the last question, given the commentary on the Broadcast business, I know you don't provide color on the magnitude of the automotive piece, but are we nearing a point where the auto business can offset the declining legacy piece and the business can sort of return to growth?.

So the automotive component of our revenue for last year, we ended the year at about 8%, and that's predominantly the Broadcast – that's 8% of total revenue was in automotive. In the automotive products, the radio products in particular grew strongly from 2014 to 2015 although that did not offset the decline on consumer.

We again do not – I don't believe that the automotive – the automotive will continue to ramp, but I think that the ASP declines in the consumer piece, combined with the fact that we had a very strong first half in Broadcast consumer, I don't believe that the growth in automotive can exceed that given that the consumer piece is still quite a bit larger than automotive.

But we do – we are continuing to get record design win activity on the automotive side and that business is very high quality, good margins and continues to see traction in the market. So it's a mixed story on Broadcast, with automotive up, consumer continuing to see some declines on ASP offset by share gains.

But overall, net-net for the year, we'll still probably be down..

Okay. Thank you. And congratulations again..

Thank you..

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

Hey, guys. Thanks for taking my question. Just a couple. On the OpEx, you said $73 million, but then, for the year, it kind of implies flat to down. I was just curious, it sounds like some tape-outs in Q1. How does that – does that come back out in June, and then you grow off of that level? If you could just talk about the slip (47:46) there? Thanks..

Sure, Blayne. This is John. So there's a $3 million increase in OpEx in the first quarter, specifically due to fringe resetting, primarily around payroll taxes and 401(k) contributions, et cetera. So we guided OpEx for the year, for the full year 2016, to be up around 5%.

So with the overall tape-out cost, we think for the year, this year 2016 will be higher than 2015. But you will see a seasonally high OpEx in first quarter, we believe..

Right.

I guess if you just took $73 million flat, you'd get over that 5% growth, but does it step back down in June, and then proceed from there?.

Yes. That's a tail-off and the fringe cost effect is rational to assume there. Yes..

Got you. And then, I just wanted to revisit a prior question on gross margin. You were at the bottom of your long-term range. You step up a little bit as Infrastructure comes back, but I would expect IoT to be the faster growing segment.

So I'm just trying to figure out how you get to the middle or higher end of that range given that you should have a continual drag to the year, as you do grow on IoT? What are the put factors, the other way, that you can improve gross margins within IoT?.

It really comes around to ongoing cost improvements in IoT, as well as mix shift within IoT. We talked about implementing more of our silicon content into more of the modules. That's another trend, so these are all angles that we'll continue to work, as we do on a continuous basis relative to the margins..

Okay. Nice job, guys. Thanks..

Thank you..

Thank you. I would now hand the call back over to Jalene Hoover..

Thank you, Shannon, and thanks to everyone for joining us this morning. This concludes today's call..