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

Cody Acree - Drexel Hamilton LLC Suji De Silva - Topeka Capital Markets Matthew D. Ramsay - Canaccord Genuity, Inc. Craig A. Ellis - B. Riley & Co. LLC Blayne Curtis - Barclays Capital, Inc. Tore Svanberg - Stifel, Nicolaus & Co., Inc. Ian L. Ing - MKM Partners LLC Rajvindra S. Gill - Needham & Co. LLC Harsh V. Kumar - Stephens, Inc..

Good morning. My name is Heidi and I will be your conference operator today. At this time I would like to welcome everyone to the Silicon Labs First Quarter 2016 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. Thank you.

I would now like to turn the call over to Ms. Jalene Hoover..

Thank you, Heidi. Good morning, everyone. Thank you for taking the time to dial in. Tyson Tuttle, Chief Executive Officer; and John Hollister, Chief Financial Officer, are on today's call. We will discuss our financial performance and review our business activities for the first 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 four 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 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 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. In addition, it is not our intent that the non-GAAP financial measures discussed today replace the presentation of Silicon Labs GAAP financial results.

We are providing this information to 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 Financial Officer, John Hollister..

Thank you, Jalene. I am pleased to announce solid first quarter results. Revenue for Q1 was slightly above $162 million, exceeding the high end of our guidance range. When combined with good gross margin performance and favorable OpEx, strong first quarter revenue drove non-GAAP earnings per share above the high end of our guidance range.

Total Q1 revenue increased 1% sequentially, fueled by outperformance in our IoT products, which set a new record. First quarter IoT revenue grew almost 6% sequentially, ending at $71 million or 44% of revenue significantly exceeding expectations.

We saw sequential growth across most IoT product lines with particular strength in 8-bit MCUs, sub-GHz wireless and mesh networking products. Infrastructure increased 3% sequentially to $32 million or 19% of Q1 revenue, driven primarily by strength in our isolation products, which delivered a fifth sequential record revenue quarter.

Broadcast revenue declined 3% sequentially to $38 million or 24% of first quarter revenue with declines in consumer, partially offset by growth in our automotive radio products. First quarter Access revenue declined to $21 million or 13% of revenue.

Looking at end market performance for the quarter, we saw growth in automotive and industrial markets with the latter driven by strength in industrial automation, smart metering and isolation. Sales into communication end markets were flat.

Consumer revenue was slightly down with declines in Broadcast consumer partially offset by strength in wearables. Geographically, sales into the Asia Pacific region were down in the first quarter with declines in Broadcast, offset some by growth in IoT.

European-based revenue increased on the strength of IoT product sales, including a ramp in smart metering. Revenue in the Americas declined slightly. First quarter non-GAAP gross margins exceeded expectations slightly at 59.6%.

Non-GAAP operating expenses were favorable to our first quarter guide due to lower than expected tape-out expenses and ended at $71 million. R&D expenses were $38 million and SG&A expenses were $33 million.

Year-on-year, we saw growth in non-GAAP OpEx of around $1 million or 1%, driven primarily by head count, including additions from two 2015 accretive acquisitions. Q1 non-GAAP operating income declined slightly to $25 million or 15.5% of revenue, and non-GAAP earnings per share ended above the high end of our guidance range at $0.51.

On a GAAP basis, first quarter gross margins were 59%. Q1 R&D expenses were up slightly to $49 million, and SG&A expenses declined to $40 million on lower than expected acquisition-related charges. GAAP earnings ended the quarter above the guidance range at $0.14 per share.

Overall, our balance sheet remains very healthy, and we ended the quarter with cash and investments totaling $260 million. Q1 buybacks were approximately $18 million, and we have $82 million remaining in our 2016 share repurchase program. Our first quarter diluted share count is at a historic low level at 42.2 million shares.

Accounts receivable increased slightly to $75 million or 41 days outstanding with record collections of more than $180 million. First quarter cash flows from operations were robust at $42 million which is an $18 million increase year-on-year.

We saw outstanding performance in our inventory management in Q1 with turns improving to 5.4 times from 4.9 times on $49 million in net inventory. I will now cover second quarter guidance.

This month, we entered into an agreement to sell a number of patents related to non-strategic products that will contribute $5 million to our second quarter revenue with no associated cost of goods sold impact. Including patent sale revenue, we expect total second quarter revenue to increase to between $168 million and $173 million.

We anticipate IoT and Infrastructure revenue to increase in Q2 and Broadcast and Access revenue to decline. Second quarter non-GAAP gross margins are expected to be approximately 61%, including the benefit of the patent sale. Ex-patent sale, we anticipate that product gross margins will improve to approximately 60%.

We estimate that our Q2 non-GAAP operating expenses will be approximately $73 million with an expected increase in new product tape-out expenses. We expect our Q2 non-GAAP effective tax rate to remain flat at about 12%.

We estimate second quarter non-GAAP EPS will be in the range of $0.61 to $0.67 per share, which reflects an approximate $0.09 contribution from Q2 patent sale revenue. We expect GAAP EPS to be in the range of $0.23 to $0.29 per share. Now, I'll turn the call over to Tyson.

Thanks, John. We are pleased to kick off our 20th anniversary year with strong financial performance in what is usually a seasonally down quarter. Our strategic growth products have surpassed 2/3 of total revenue fueled by records in IoT and Infrastructure.

The Internet of Things is Silicon Labs' largest target market and fastest ramping product category. According to the latest IHS forecast, there will be more than 74 billion connected devices by 2025.

To further establish ourselves as the foremost innovator in this market, over the past several years, we have invested organically and through a series of strategic acquisitions to build an industry-leading portfolio of low energy MCUs and wireless products.

During the quarter, we launched our new Wireless Gecko portfolio, featuring three families of multiprotocol SoCs. Mighty Gecko speeds the design of mesh networking applications based on our best-in-class Thread and ZigBee software stacks. Flex Gecko provides intuitive radio interface software for proprietary protocols often used in industrial IoT.

And Blue Gecko reduces the cost and complexity of adding Bluetooth low energy to numerous applications, including the connected home, beacons, health and fitness devices.

These wireless SoCs combine our energy-friendly MCU technology with the multiprotocol RF transceiver, advanced hardware acceleration for encryption and security and scalable memory options.

By supporting multiple wireless standards on a single SoC platform, we give customers more flexibility and the opportunity to enhance product usability while delivering a richer set of features in a small form factor. Developers benefit from simpler designs, reduced bill of materials, and faster time to market.

Our multiprotocol Wireless Gecko portfolio enables game-changing functionality for our customers and will drive our growth and success in the IoT market for many years ahead. To address the rapid growth of the IoT market, developers need simple, scalable platforms and solutions that remove complexity from the design process.

Wireless modules are one of the most effective ways to support simplicity in the IoT by streamlining development, minimizing engineering cost and effort, and accelerating time to market. We are one of the few companies that can offer customers a module-to-SoC migration path, enabling software reuse and hardware feature compatibility.

Modules are also key to scaling our solutions into the broad IoT market and allowing us to capture greater content and gross margin dollars. During the quarter, we introduced two new wireless modules.

Our Wizard Gecko module provides developers with a plug-and-play solution for adding Wi-Fi to a wide range of consumer, industrial, and machine to machine applications, where strong RF performance, low power consumption and fast time to market are key requirements.

Our new Blue Gecko Bluetooth module delivers the benefits of small footprint, exceptional integration, and low energy technology for short range wireless applications such as smartphone accessories, wearables, and point-of-sale devices. Now, I'll cover Infrastructure.

To keep pace with the growing complexity of communications equipment, developers need advanced timing solutions that streamline system design and speed time to market.

We offer a one-stop shop portfolio of high performance clock, buffer and oscillator products as well as the best-in-class timing tools to help developers quickly create custom clock tree designs and receive samples within two weeks.

The industry is rapidly moving from 10 gig to 100 gig data rates in data centers and is also transitioning from 100 gig to 400 gig solutions for long-haul and metro networks.

To address the performance requirements of these high speed optical networks, this week we introduced a family of jitter-attenuating clocks that offer 40% smaller footprint and lower power than competing solutions. Our isolation products delivered a fifth record revenue quarter fueled by our growing digital isolation portfolio.

Our digital isolators offer superior performance, longer lifetimes, and 10 times the reliability of optical-based solutions. We are capturing design wins in a wide range of applications, including power supplies, solar inverters, motor controllers, and electric and hybrid electric vehicles.

During the quarter, we launched a new family of isolated gate drivers, delivering the highest noise immunity in the industry and extending our leadership in the high efficiency power supply market. Finally, we are delighted to welcome Neil Kim to our board of directors.

Neil joins us following a 16-year tenure at Broadcom, most recently serving as Executive Vice President of Operations and Central Engineering. Prior to Broadcom, Neil held a variety of senior technical and management positions at Western Digital.

Over the past 20 years, the company has posted a solid history of product innovation, driven by the high caliber of talent that underpins our success.

We believe our strengths in integration, scalable platforms, wireless software and development tools will continue to provide an important competitive advantage in delivering differentiated solutions to our customers.

We are executing on our strategy to target large, diversified growth markets and are expanding our broad product portfolio to address these opportunities. We have the right team and the right strategy in place, and I'm excited by the enormous progress we've made toward achieving our goals. Thank you for your time and attention.

Before we take your questions, I'd like to turn the call back to Jalene.

Jalene?.

Thank you, Tyson. Before we open the call for the question-and-answer session, I would like to announce that we will participate in Stifel's Technology, Media and Internet Conference in San Francisco on June 7 this quarter. 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.

Heidi?.

Your first question comes from the line of Cody Acree from Drexel Hamilton. Go ahead. Your line is open..

Thanks, guys, for letting me ask a question. Tyson, maybe, if you could start with just some underlying color on the strength of the end markets for your IoT and Infrastructure business. Obviously, a lot of – some positive trends we've been seeing from other companies in the Infrastructure business.

How much of this is you taking shares of your products and how much of this is underlying market demand?.

The markets that are driving the IoT revenue, we've got a nice smart energy, smart metering set of wins in Europe, but it is a broad range of applications within the U.S. and Europe in particular drove the strength in Q1 around wearables, around lighting, around the smart metering market, and a broad range of industrial applications as well.

So, it's a fairly broad range of applications in IoT, and this is traction with new products and new design wins that are ramping into the market. On the Infrastructure side, it's a combination of returning market strength.

I think that we saw, you know, muted demand in the first half of Q1, and as we came into the second half, we saw bookings pick up a bit. So there was strength in our core business as well as the ramps of some new products within Infrastructure.

So, you've got a broad range of isolation products on the power side that go into things like motor controls and power supplies and solar inverters.

And so, that continues to see a steady ramp and we've seen some strength in the bookings on the timing side as well as we see some of the CapEx coming back in our core optical communications networks as well as some beginning of success in our expansion into data centers into wireless..

Thanks for that. And then on the module and SoC side, I guess, one, can you maybe characterize the percentage of revenue now that's tied in IoT to modules and SoCs? And as you go forward, you've been introducing a lot of new products in that vein.

I guess, what's next? What's on the plate? And from a portfolio standpoint, I guess what's left to fill out?.

Right. So we have a comprehensive portfolio of microcontrollers and wireless SoCs as well as modules. We did two acquisitions in the past year of modules for Bluetooth, Wi-Fi and the 15.4 ZigBee area.

So, those have been accretive to our bottom line as well as successful in our ability to take our SoCs and put them into the modules and drive those out into the market. It's not a majority, the revenue in IoT right now, but we have hit the revenue targets that we established at the beginning of the process when we did those acquisitions.

So those have been quite successful. In terms of our investment, we have rolled out the Gecko product line, the Flex, the Mighty, and the Blue Gecko SoCs as well as associated modules in Q1.

And we're going to continue to introduce new microcontrollers and wireless SoCs and modules based on that common platform as we expand those products going out through the year..

Okay. Thanks, guys, and congrats on the quarter..

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

Hi, guys. A little bit more specific question on the IoT market and the 8-bit recovery.

The 8-bit recovery, was that just market demand coming back and market macro or was there product specific drivers in the 8-bit recovery?.

It was a combination. We have introduced a new family of 8-bit microcontrollers last year, the EFM8B family, which ties in with our 32-bit Gecko family. And so we have been actively introducing products and marketing those out into the market and are starting to see some level of revenue ramp from those.

But the majority of the recovery on the 8-bit side I think is just strength in the broad markets. China was relatively strong for the 8-bit market. But, we have a quite large portfolio and quite heavy exposure to a broad range of applications there. So it was solid market demand that drove good performance out of the 8-bit category in Q1..

Great. And then my other question is around the multiprotocol radio products.

Are those still early in being a portion of the design wins versus the traditional products? Or are people – are you seeing uptake in those being fairly rapid and the cutover being aggressive, and if so, what is the ASP margin opportunity uplift if multiprotocol products do take off fairly quickly?.

So, if we take our wireless revenue, if you look today, most of the revenue is still coming from single protocol products, that is proprietary as well as mesh 15.4 ZigBee in particular. So, that forms the majority of the revenue today.

If we look at it from a design win perspective, the new products based on the EFR32 platform, which is capable of both single and multiprotocol, those design wins are starting to pick up with a number of those applications requiring mesh connectivity, for instance, with ZigBee or Thread, together with Bluetooth capability which allows you to connect in with a smartphone.

So, you can imagine that as customers need that additional functionality, there's an additional value that goes along with that both in terms of the software stacks and in terms of the silicon that we're able to capture. So that will drive a solid margin differentiation and growth, potential for the company going forward..

Thanks, Tyson..

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

Thank you very much for letting me ask a question. Good morning. Just to piggyback on Suji's question there a little bit, you guys are going to be launching and ramping into revenue, the Wireless Gecko multiprotocol solutions.

And, Tyson, it would be interesting to get your perspective on, I guess, A, how many of the folks that you're interacting with are really interested in having multiple protocols versus just focusing on a single one? And, I guess, B, which of these protocols is really driving the majority of the growth? I think a couple of years ago where you thought of ZigBee as your primary communication protocol, but it seems to me that Thread and Bluetooth LE and some others are picking up steam within the industry.

So, any perspective there would be really helpful..

It is across the board in terms of the applications. There are a lot of ZigBee customers that are contemplating moving over to the Thread protocol, which brings IP connectivity into mesh networking.

And a lot of those customers like to have a Bluetooth LE connection within the same device so that they can commission or have connectivity into the smartphones at the same time as connecting into the mesh network. So that is a very popular feature among our ZigBee customers.

We have a broad range of industrial customers that also like to be able to talk to a sub-GHz more of an industrial IoT type network that would like to potentially talk to a smartphone interface or to a ZigBee network.

So you have a definite mix of different network and device types, and we're one of the few companies that can offer – or really the only company that can offer that multiprotocol capability on a common silicon platform, where the software is consistent across all of the various protocols where you have integrated low power MCU functionality, high RF performance, very low energy consumption all at the same time.

So, we believe that this new platform has a high degree of differentiation and we are widely engaged out in the market. The launch that we did in Q1 was a broad market launch into the channel, not just into a small number of customers. It's getting out broadly into the market now..

Thanks for that, Tyson. That's helpful.

A couple for you, John, I guess first, which division or line item do you expect the IP revenue to come in? And are there any future revenue impacts from that? And then on OpEx, things are moving around with tape-outs, it looks like, but is sort of mid-single digit OpEx growth still the way to think about the year? Thanks..

Yes, Matt. So, the patent sale item would be in the Infrastructure category, and we'll update that as we round out the Q2 report. On the OpEx side, yes, we did have some tape-outs that were scheduled for late in Q1 that spilled over into Q2, so we'll see an uptick in OpEx for Q2.

We do see the second half numbers as being flat or even slightly down from the Q2 levels, so, we had indicated earlier this year roughly a 5% indication on the non-GAAP OpEx for the year, and that holds with the trends that we're seeing right now..

I also wanted to just add one point, that our guidance with respect to the Infrastructure revenue being up in Q2 is independent of the patent sale revenue. So, organically, the Infrastructure revenue we're guiding up in Q2..

Yes, good point..

Thanks very much, guys. Congrats..

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

Thank you for taking the question, and nice job on the quarterly execution, guys. My first question is a follow-up to Matt's, and it relates to the licensing. So, one, nice to see the company monetizing its IP.

Should we consider this a one-time event, or is there potential for either a recurring licensing stream from this agreement or for potential license payments from other IP that you might be considering licensing to other entities?.

Yes, Craig, this is John. Thanks for the question. The impact on this transaction will be one-time. So the $5 million in the second quarter of this year, that will be a one-time item. As far as the larger context of that, we are opportunistic in this area. We had a couple of these transactions back in 2014.

So we don't have anything to disclose at this moment, but, we will maintain an opportunistic posture about this going forward..

Thanks, John. And then the follow-up is for Tyson. Tyson, clearly the module acquisitions are going well.

But, what I'm interested in understanding is as you look at the module businesses and as you look at your SoC business, to what extent is the company seeing those two businesses have different characteristics, either from an application design-in standpoint, a SAM expansion standpoint, or a channel productivity standpoint? And how should investors think about the growth rates of those two businesses over time? Thank you..

So the module business is really key in our ability to scale into the broad market. It is a means to design in our products and our technology where customers do not have potentially a high level of RF design expertise or where they don't want to make the investment in all of the product test.

The module in general will contain the antenna, so the support level required from the channel partners or from us is less with the module. And it also makes the design-in and the amount of investment on the part of the customer much simpler.

So, there's a value with that both to us in terms of being able to scale into the broad market to have connections to those customers still from a programming and a software stickiness standpoint. And I do believe that that opens up a large amount of SAM. There's a higher dollar content.

There's a higher gross margin content – gross margin dollar content in the module.

And so that opens up additional SAM for us as we can address more and more of these smaller applications, many of which may migrate to higher volume, in which case we can afford and they can afford the additional R&D expense and support expense to put the SoC on their board where they would do some of the RF testing as part of that.

But, if you're shipping millions of units, that can make sense as they're trying to drive efficiencies out of that. And we can support that as an SoC provider where that can go – we can support moving from a module to an SoC. It's seamless from a hardware feature standpoint. It's seamless from a tools and software standpoint.

And we can enable those high volume customers to achieve the cost reductions that are required while still maintaining a positive margin profile on our side.

So, we think it's a very strategic thing to be in the module business to be able to maintain that connection to the customers and really fundamentally as we become more and more broad-based as a company to achieve the scale in terms of the support requirements and the efficiency and leverage that we get as we expand into these variety of applications and customers..

Thank you, Tyson..

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

Hey, guys. Thanks for taking my question. Just wanted to follow up on the module business, Tyson, you said that it was hitting your targets. Maybe refresh my memory as to what those targets are.

Are you talking about them hitting their goals for an earn-out, and then just any commentary on the incremental growth, whether it's in fact from those modules or more the silicon (31:20) chip sales?.

Yes, Blayne, this is John. So going back on the Bluegiga acquisition, we had modeled in mid-$20 million type contribution for that business and for the Telegesis acquisition, we had indicated an opportunity of $8 million to $10 million of incremental revenue in fiscal 2016.

So, those businesses are on track around those objectives, and we do see opportunity to grow these businesses going forward, as Tyson had indicated, with opportunities to particularly work with early customers where using a module can benefit their time to market and ease their product development process..

Yes, I would also add that we have been able to integrate our latest silicon into a variety of modules to converge the roadmap and the software that these modules were using into our roadmap and to drive the supply chain efficiencies going forward.

So, I think both from a revenue attainment standpoint and accretion standpoint and also especially there from a roadmap and customer engagement standpoint, we're quite pleased with the addition of the module companies and of those products into our portfolio..

Thanks. And then just on Broadcast, business is down in June.

I don't know what normal seasonality is anymore in this business, but just any comments on the end market and pricing and share as it relates to seasonality this year?.

Yes, Blayne; this is John, again. So for Broadcast, looking at the annual growth dynamics around this market, we had a very strong first half of 2015 performance. So we do have some tougher year-on-year comparisons in this market. And we did see some degree of market shift into lower ASP-type products recently.

So we see this business category trending down on a forward basis. So it's a bit less on seasonality and more on those kind of macro trends..

Yes, if you look at the profile, we're moving into the new model year and also just from a geographical dynamic, moving from maybe a higher end device into a lower end device, moving more of the business into China.

We do believe that we will expand our market share this year in TVs over what it was last year, but that the ASP and the content per device will go down.

So, if you just look at the overall trend, we believe we'll be maintaining market share, growing market share, but that the ASP per device will go down and the growth vector that we have in automotive is not sufficient to take that. So as we go into the second half, we will see a steady decline in the Broadcast revenue..

Great. Thanks, guys..

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

Yes, thank you and congratulations on the two decades. First question is a follow-up to this last topic, which is the Broadcast, and maybe also the Access businesses.

How should we just think about both those for the whole year, so, not directionally in Q2 but as we think about the whole 2016 year? I think you did say on Broadcast that maybe the TV part of it wasn't – it's declining more and auto is not upsetting it, but what about on the Access side?.

Yes, if you take both Access and Broadcast, they're now less than 1/3 of the overall business. So, the Infrastructure and the IoT components of the business combined with the Broadcast automotive now are over 2/3. And we took a step down in Broadcast in the middle of last year and now we've kind of reached a new normal.

We are going to see a steady decline in that. The Access, we also had a very strong first half in 2015 and have now kind of come down to a new normal, and we'll see again, as we've seen in the past, a steady decline in those.

So, as we go into the second half, we believe that Access and Broadcast will have a steady decline, but that will be more than offset by growth in the IoT and Infrastructure.

So, overall, the revenue in the company as we currently have visibility will trend up through the year, but, the growth in IoT and Infrastructure will be offset somewhat by declines in Access and Broadcast..

That's very helpful, Tyson. And as the follow-up, looking at your timing business, it's obviously volatile as it's more tied to CapEx.

But, if we look at the opportunity you have in the data center markets, are you starting to get some visibility already there, where maybe some design wins could actually make this more of a stable growth business for the next few quarters as opposed to this constant up and down?.

The data center and also on the wireless side, we are seeing traction with our new products, where our performance, our integration, our flexibility is very attractive for those customers. So, that's in data center, compute, storage, all the interconnect within the data center.

And then on the wireless side where you're clocking a number of the RF components within the chain as well as the interfaces. So, the flexibility of our new products is leading to design wins in that space.

We have talked about long-term growth rates in the Infrastructure in the 10% range, and that's a combination of our timing products as well as our isolation products, which get a lot of traction in power supplies for data centers. So, the data centers, the power efficiency is very, very important.

Our isolation technology is very well suited to those types of applications. And while the isolation business is quite broad, we have a fairly decent exposure into the data center on the power supply side. So that's also one of the drivers that we're seeing within that Infrastructure category to have a larger exposure to that end market..

Very helpful. Congratulations again. Thank you..

Thank you..

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

Yes. Thank you. So you've got a nice range of module offerings now to serve all the early customers. But, just wanted to get a sense of where the big OEMs are in terms of ramping more IoT offerings. There are headlines out there that Google Nest has been slow to launch some refreshed products, nothing out since middle of last year.

So, is this industry-wide, or are others taking a share from Google? Thanks.

I would not take the situation at Nest as a global indication of the overall market. We're actively partnered with them and they are actively working on new product developments that we hope will be launched and ramped into production.

But if you look at the overall ecosystem for IoT, if we take the operator side, you've got continuing rollouts from cable companies, from telecom operators that are driving a number of home automations, security-type applications. You also have large companies, some of the retail channel.

We have also seen Samsung, which is one of our large partners historically as a company with their acquisition of SmartThings and the integration of those technologies more broadly into their product portfolio and into their modules that are going into their ecosystem.

So, there are a number of different ecosystems out there all really battling for share, all really trying to comprehend the interoperability as well as the data and the applications and the service revenue that derives from that.

So, we are broadly exposed into those ecosystems with our ZigBee products and with our next-generation multiprotocol devices, so it's not just one provider that would be driving that.

And then on the IoT side, you really also have a large number of industrial companies that have not traditionally made connected devices, but that are now taking their ecosystem.

For instance, the lighting market or the building automation market or the smart metering market, these are applications that were traditionally not connected that are now becoming more connected, and those companies are rapidly moving to adopt different types of networking technology into their products to further differentiate NAV (40:38) features into those.

So, I would say that it's both from a large company ecosystem like Google or Samsung or others, but it's also large industrial companies that are implementing these technologies more broadly into the industrial space..

Thanks, Tyson. That's helpful.

And then just a clarification on this decline in the ASPs in TV tuners, I mean, is there any shift in the mix of hybrid tuners versus digital tuners that are required in the world, or is there some geographic shifts going on, or is it just sort of the China OEMs moving down the stack being more price sensitive?.

It's really a matter of the market moving a little bit down in terms of the functionality required in the tuner as opposed to moving to an all-digital tuner.

Vast majority of these are hybrid, so they have both analog and digital reception capability cable as well as terrestrial, and we have the best technology and we've driven the best performance and the best level of integration across the variety of high end to low end-type applications depending on the SoC that is used.

And so we have a broad range of those. As it's moved down into, say, lower functionality devices, the ASP associated with that is just somewhat lower. And so that has driven some pressure in terms of the revenue as we're moving here into the new year.

It's not a market share on our part, but it is a market share shift among our customers geographically and also functionally..

Great. Thank you..

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

Yes. Thanks for taking my questions and congratulations as well.

Just wanted to get your thoughts on the long-term growth rate, now that we're starting to see kind of a real inflection point between the new growth segments versus the old segments and we have more evidence now that IoT and Infrastructure continues to grow, how do we think about the new long-term growth rate on an organic basis? Any thoughts around that would be helpful..

So, if we take long-term, we've given a long-term growth rate target of 20% in the IoT category, and last year we grew that 26%, which did include a couple of modest acquisitions on top of that. We have also given a 10% growth rate on our Infrastructure business, and last year we achieved a 13% growth rate organically within that business.

So I would say that those two businesses are performing quite well. And in Q1, those two businesses were 63% of our revenue. And then you add the growth vector in the automotive area, which is somewhat offsetting the mature business that we have on the consumer and home side.

So you have essentially 2/3 of the business in Access and Broadcast, and then on a long-term basis, those are going to continue a modest and steady decline over time with faster growth rates in IoT and Infrastructure. We have a stated goal as a company long-term to get back into this double-digit 10%-plus, 10% to 15% growth range for the company.

We are committed to doing that. I think that as you see the performance in our IoT business and our Infrastructure business and as those continue to become a larger and larger share, that will tick up the overall growth rate of the company, which is now in the single digits and the mid-single digits move up into the double digits in the long-term..

And under the same vein, if these older segments continue to bleed off, I'm just trying to understand what the kind of strategic importance of having these businesses -- how much of the profit are generated from the Access business and the Broadcast business?.

Yes; so, this is John. These businesses do generate meaningful positive margins for us, and certainly beneficial to our operating margins. That said, so is some of the other growth businesses in the company. Timing and isolation products are also performing quite well in terms of margins.

So our strategy is to hold these businesses and continue to operate them and let the IoT and Infrastructure business continue to become more dominant in terms of the overall mix of profitability going forward here..

Yes, Raj; this is Tyson. If you look at the strategy of the company and where we believe the largest markets are in terms of our future R&D investment, we believe that the IoT market is our largest target market.

We're addressing $8 billion and moving beyond $10 billion worth of legitimate SAM for those products, and we believe we have a great story and product portfolio and strategy around attacking those markets.

Then if you look at Infrastructure, we've got $2 billion to $3 billion worth of SAM, and again industry-leading positions in our timing and our Infrastructure.

So if you look it from a portfolio management standpoint, where we want to target our R&D investments is in the place where we believe we can have the largest long-term success and generate the most return on those dollars.

And we have decided that investing into a legacy segment like Access, while we do continue to maintain those products and support them and some number of developments within those areas, it's best for us to invest the money into areas that are going to show a higher return, a longer longevity, and a faster growth and are large enough to drive our revenue into billion dollars, $2 billion going forward.

So, it's really a portfolio management question of where you put your R&D dollars, and it's visible to the outside because we have these in different categories. And I think that that's useful for investors so that you know exactly how we're investing our money and how those different segments are performing over time..

Great. Thank you..

Your next question comes from the line of Harsh Kumar from Stephens. Go ahead, your line is open..

Yes, hey, guys. Congratulations on great numbers. Two quick questions. A lot of your competitive companies have a lot of parts and pieces of the IoT puzzle. You guys have all the solutions with complete parts and complete parts and pieces.

I'm curious, Tyson, your thoughts on how much of a lead this provides and how much of an advantage it is relative to your ability to outgrow the competition..

So, on the IoT side, we have been targeting this market fairly strongly for the last five years. I believe that we identified this market and have been investing in this, both organically as well as through targeted acquisitions, since 2012 and before.

We also had a strategy even before that of targeting the microcontroller market and of going into the broad-based markets, building a channel for close to a decade after we sold our wireless business in 2007, our cellular wireless business. And so we have technology.

We have been focused on the markets and really developing and understanding what IoT is going to require for quite some time.

Today, we have a leading portfolio of software stacks, of tools, of SoCs that I believe is best-in-class in the industry, and we are engaged with a large number of the market leaders in designing-in our products into those areas. In terms of the competition, you have really mostly the microcontroller companies. You've got Microchip. You've got NXP.

You've got ST, who are also investing in this area and have solutions out into the markets, but have traditionally not been wireless companies, and so they are – I would say we are ahead of them. We respect their capabilities and their scale and their channel and the customers that they serve.

And because it's such a large market, a broad market, we believe we're going to get more than our fair share here going forward, and that will result in taking market share from existing sockets but really driven by the fact that this IoT market is a greenfield of new opportunities where people are adding wireless and connectivity functionality into applications that did not have it before.

So, I think it's really driven by both having a lead, having a good market share gain, but also being in the right market that is going to grow and the number of sockets and applications. We talked about 75 billion devices by 2025. That's a lot of units for a lot of people.

Thanks, Tyson. And as a follow-up, I noticed you guys had some timing products addressing optical market.

I was curious in that particular business how much of your business is geared – or how much of your revenues are geared towards optical as of this point versus traditional wireline?.

Well, the optical revenue is about 2/3 of the timing business today. And what people typically think of wireline, well that's really the optical. So, we're not into the wired connections, like Ethernet and those wired connections as much. Those have a different performance and integration level.

So, most of the business that we have today in timing goes into core, optical, networking, metro, long-haul networks that require high performance and integration with the timing solutions themselves. And then we have growing business on the data center and wireless side. But, today it's about 2/3 on the optical communications area..

Understood. Thanks, Tyson. Congratulations again..

Thank you..

There are no further questions at this time. I would now like to hand the call back over to Jalene Hoover..

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