Good afternoon. My name is Rachel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation Q4 Fiscal Year 2014 Earnings Release Conference Call. (Operator Instructions). Thank you. And I’ll now turn the call over to Sandy Harrison; you may begin your conference..

Thank you, Rachel, welcome to Semtech’s fourth quarter and fiscal year 2014 yearend conference call. I’m Sandy Harrison, Director of Business Finance and Investor Relations. Speakers for today’s call will be Mohan Maheswaran, Semtech’s President and Chief Executive Officer; and Emeka Chukwu, our Chief Financial Officer.

A press release announcing our unaudited results for the quarter ended January 26, 2014 was issued after the market closed today and is available on our website at www.semtech.com.

Today’s call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in these statements.

For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor statement included in today’s press release, as well as the Other Risk Factor section of our most recent periodic reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission.

As a reminder, comments made on today’s call are current as of today only. Semtech undertakes no obligation to update the information in this call should facts or circumstances change.

In addition, the financial statements released today as part of our press release and earnings conference call are preliminary and include a number of special charges for impairment and restructuring related expenses. These estimates constitute forward-looking statements under applicable securities laws.

The final special charges reported in our Form 10-Q for the fourth quarter of 2014 could differ preliminary estimate that we announced today. Any change in amount of these special charges could have an effect our net loss for the fourth quarter of 2014.

During the call, we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. A discussion of why the management team considers non-GAAP information useful, along with detailed reconciliations between GAAP and non-GAAP results, are included in today’s press release.

With that, I’ll now turn the call over to Semtech’s Chief Financial Officer, Emeka Chukwu..

Thank you Sandy. Good afternoon, everyone. Semtech’s revenue for the fourth quarter of fiscal year 2014 was $126.5 million, slightly ahead of the midpoint of the revised range we provided in our December 18, 2013 update, and represented a sequential decline of 10% from Q3, and a decline of 16% from Q4 of fiscal year 2013.

The quarterly decline in revenue was primarily attributable to the on growing weakness in CapEx spending in the optical long-haul communication infrastructure market. And the seasonal softness in the consumer market we typically see in our fiscal Q4. Full year fiscal 2014 revenue was a record $595 million, up approximately 3% from fiscal year 2013.

The increase was attributable to growth in our Gennum product group. In Q4 of fiscal year 2014, 73% of shipments were derived from customers in Asia, 15% from North America and 12% from Europe. Also in Q4, the direct sales represented approximately 53% of total revenue by wire distribution net up 47%.

Booking improved throughout the first quarter and our book-to-bill was solidly above. First book is accounted for 47% of shipments during the quarter. Due to which CapEx spending in the long-haul optical communication infrastructure market and the resulting steep erosion in ASPs and a potential transition to internet solution by some of our customers.

The Company made a strategic decision in the fourth quarter of fiscal year 2014 to reduce the level of its investment in the long-haul optical market. The Company also reorganizes for our group to take advantage of all products synergies and align the spending to current demand levels.

These actions included reducing worldwide headcount by approximately 6%. Terminating certain new product development associated with the long-haul optical market and suspending some discretionary spending. As a result in Q4, the company recorded special charges of $178.9 million for impairment and restructure related activities.

These special charges include onetime non-cash items of $147.4 million for impairment of goodwill and other intangible assets, $15 million for inventory reserves, $6.8 million for fixed update impairments and $6.5 million for contract commitment.

The special charges also include $3.1 million of onetime cash item for some termination benefits and other contract cancellation liabilities. The Company also recorded $53.2 million in reserves for certain deferred tax assets including by the special charges.

In Q1 of fiscal year 2015, we expect to incur additional cash charges of approximately $500,000 for termination benefits and a cost to vacate certain premises. Growth margin on GAAP basis for Q4 of fiscal year 2014 was 42.5%, down from 59.1% last quarter and down from 58.4% the year ago.

The decline was driven by high inventory results of approximately $15 million, fixed asset of approximately $4.3 million and $1.7 million in contract commitment associated with strategic decision to significantly reduce investment in the long-haul optical communications market.

In Q1 of fiscal year 2015, we expect gross margin to be between 58.5% and 59.5%. For the full year of fiscal year 2014 GAAP gross margin was 56.3% compared to 54.4% in fiscal year 2013. Excluding the special charges recorded in Q4, gross margin for the full year would have been 59.2%.

Operating expense on a GAAP basis was $220.5 million for the first quarter of fiscal year 2014. The significant sequential increase over due to the one time nature of the Q4 special charges and the impact of our previously announced expense reductions.

These segments will be partially offset by the customer of higher payroll related expenses associated with a new fiscal year. We recorded an expense of $1.8 million in Asia from order in Q4 of fiscal year 2014, compared to an expense of $2.1 million recorded in Q3.

The decrease in the spent amount was driven primarily by low offering exchange losses versus the prior quarter. We expect to record an interest and other expense of approximately $1.8 million in Q1 of fiscal year 2015. In Q4 of fiscal 2014 we recorded a tax expense of $42.3 million.

During the quarter we recorded approximately $53.2 million of evaluation reserve against our deferred tax assets, reflecting utilization concerns driven by the special charges. This compared to a net tax benefit of $1.3 million in Q3. We estimate our GAAP tax rate for fiscal year 2015 to be between 14% and 16%.

The increase from a normal run rate is due to the recording impact of the utilization concerns mentioned earlier. And an expected highest mix of income from higher tax jurisdiction.

Our GAAP net loss for the fourth quarter of fiscal year 2014 was $210.8 million or a loss of $3.12 per share on a fully diluted basis down from GAAP net income of $12.5 million or $0.18 per share in Q3 due to the special charges recorded during the fourth quarter.

Our GAAP net loss for fiscal year 2014 was $164.5 million or a loss of $2.44 per share down from GAAP net income of $41.9 million or $0.62 per share for fiscal year 2013.

On non-GAAP basis excluding the impact of equity compensation, amortization of acquired intangible, acquisition related expenses, impairment and restructuring related charges gross margin was 59.6%, up from 59.4% in Q3. The higher gross margin was a result of more favorable mix of general products.

We expect non-GAAP gross margin in Q1 of fiscal year 2015 to be between 59% and 60%. We believe that the more favorable mix from general will continue to benefit gross margin at some point offset to decline in the 40 gig, 100 gig products for the long-haul optical market.

Our Q4 operating expenses on a non-GAAP basis were down slightly to $55.3 million when compared to the prior quarter. In Q1 of fiscal year 2015 we expect operating expense to decline approximately 5% to 8% sequentially due to the cost reduction initiatives previously announced.

These setting will be slightly offset by higher payroll related expenses due to increase work hours and higher payroll taxes. Our non-GAAP tax rate was 15.6% in Q4 and approximately 10.6% in fiscal year 2014.

We expect our fiscal year 2015 non-GAAP tax rate to be in the range of 14% to 16% slightly higher than our previous range due to the expected higher mix of income from higher tax jurisdiction.

Our cash balance at the end of the four quarter of fiscal year 2014 was approximately $247 million of cash and investment, up slightly from $242 million at the end of Q3. Cash flow from operations was up 15% in fiscal year 2014 to a record $118 million. During the fourth quarter we spent $15 million for repurchase, 550,000 shares of stock.

The total outstanding authorization now stands at approximately $62.5 million. Our share repurchases activities designed to take advantage of market opportunities and minimize dilution for the employee stock reward. The primary use of cash continues to be to pay down our debt and repurchase our shares.

The Company also spent approximately $6.4 million on property, plant and equipment in the fourth quarter. In Q1 of fiscal year 2015, we expect to spend approximately $9 million, primarily for test equipments and manufacturing capacity. Depreciation for Q4 was up approximately $5.5 million.

In Q1 of fiscal year 2015 we expect the depreciation to decline to approximately $5 million reflecting the impact of the fixed asset write down in Q4. In Q4 of fiscal year 2014 account receivable declined 11% sequentially in line with revenue decline.

Days sales outstanding increased by 10 to 51 days from Q3 above our target range of 40 to 45 days due to high mix of revenue from customers with longer payment terms. Net inventory in dollar terms declined 17% from Q3 of fiscal year 2014 to $60.3 million in Q4.

And days of inventory went from 118 days in Q3 to 83 days in Q4 due to inventory write downs and reserves associated with the reorganization. In summary, despite our challenges in the second half of fiscal year 2014, fiscal year 2014 was a record year for a company. We achieved record revenues and record cash flow operations.

Going forward, we have realized the operating expenses we invested in our future growth are to grow income faster than revenue and we expect to continue cash flow generation. I’ll now hand the call over to Mohan..

Thank you, Emeka. Good afternoon, everyone. I would discuss our Q4 fiscal year 2014 performance by end market and by product group, discuss our fiscal year 2014 performance, discuss the reorganization of our product groups and then provide our outlook for Q1 of fiscal year 2015.

In Q4 of fiscal year 2014, we achieved net revenue of $126.5 million; it was down 10% from Q3 of fiscal year 2014, down approximately 16% from Q4 of fiscal year 2013. We experienced weaker demand from the communication, industrial and consumer end markets while demand in the enterprise computing end market increased.

For the quarter, we posted non-GAAP gross margin of 59.6% and non-GAAP diluted earnings per share of $0.23 per share. Our revenues by end market were as follows. Communication revenue decreased and represented approximately 22% of total revenue.

High end consumer revenues decreased and represented 28% of total revenue of which approximately 18% was attributable to handheld devices and approximately 10% was attributable to other consumer systems.

Revenues from the industrial end market decreased and represented 26% of total revenue and revenue from the enterprise computing end market increased and represented 23% in total revenue. Now let me discuss the performance of each our product groups.

In Q4, our Protection business declined 11% sequentially and represents 32% of Semtech’s total revenue. The decline was primarily driven by seasonal softness in high end consumer and computing markets.

We believe the continued growth in the number of ports required in protect Protection increasing of speeds of these ports and the increasing sensitivity of advanced lithography devices to ESD events provide continued future growth opportunities for Semtech in the high performance Protection market.

Q4 was once again another record design win quarter for our Protection business. As we solid design wins activity for regions.

During the quarter, our Protection product group introduced several new high performance small phone factor protection platform, the RClamp 0521G uses a Semtech’s ultra small packaging design to deliver low leakage current with ultra-low capacitance which is ideal for smartphone and other mobile applications that has space constraint but also require advanced ESD protection.

The MicroClamp 0555T integrates 5 ESD protection devices into one single package reducing space in high end consumer applications. These products such a true example of how Semtech continues to drive innovation in the protection field.

In Q1 of fiscal year 2015, we expect our Protection business to increase significantly from Q4, driven primarily by recovery in smartphone demand and increase in demand from other high end consumer application including wearable and tablets. Revenues from our Gennum product group in Q4 increased 6% sequentially to represent 31% of total revenue.

The increase was primarily attributable to the increase in deployment of LTE base station in China. And growth from a number of growing enterprise computing market. In Q4, our video business also increased modestly as our latest 60 ultra-high definition video product gain momentum.

We expect the transition to the ultra-high definition video standards to be a major driver for our video products over the next several years as the video infrastructure worldwide upgrades to accommodate these new UHD standards.

Orders for Gennum products were record in Q4 and design win activity for Gennum was also very robust in Q4 with traction from the PON based station and datacenter markets.

Our Gennum business continues to progress very well with many new product releases, increasing design wins and increasing customer traction across several fast growing segments in the data comp and datacenter market.

In addition, our video broadcast and surveillance businesses are also progressing well and we expect both businesses to drive future revenue growth.

As a result of record orders and increase in demand for both our enterprise computing and video products, we expect our Gennum business to increase significantly in Q1 of fiscal year 2015 and to achieve record revenues. Turning to our Advanced Communication product group. Revenue in Q4 declined 38% sequentially and represented 16% of total revenue.

The decrease was a result of continued delays in worldwide carrier CapEx spending, in addition, we believe we have lost market share to an internal ASIC solution at Huawei in the long-haul optical market. This may have been contributing to the Q4 revenue decline but almost certainly have an impact on future demand.

Delays in global long-haul transmission infrastructure spending has driven increased price competition amongst OEMs resulting lower pricing for 40 gig and 100 gig long -haul optical systems.

Weak CapEx spending and low average selling prices appeared to have caused acceleration in the deployment of lower cost second generation 100 gig coherent system.

Huawei second generation 100 gig coherent system utilizes an internally developed ASIC with integrated PSP functionality and Semtech does not have any silicon in the second generation system.

As a result of this architectural shift which occurred much sooner than we had expected, we anticipate that our optical long-haul SAN has shrunk significant and we now expect that our 100 gig long-haul SerDes business will decline from approximately $110 million per year to approximately $30 million per year, consequently, we have also reduced our R&D investments in the optical long-haul business and downsized our advanced communications product group significantly to reduce operating expenses.

We due to expect to see a recovery in the business at this time but we do expect the business to stabilize at approximately the $30 million per year level.

While the optical long-haul exposure is definitely a challenge for us, we still believe that the overall communications infrastructure market remained attractive and we continue to invest in emerging communication segment outside the long-haul optical segment.

As an example, the overall demand for our synchronization platform is increasing, driven by an increase in deployment of LTE base station and aggregation equipment. We expect that the demand for our sync platform will continue to increase as customers replace legacy telecommunication equipment with IT based equipment.

We also recently began offering our next generation low noise ultra-low jitter PLL timing platform which we expect will generate revenue in the second half of FY15 and become the first in the new portfolio of standard timing products.

In Q1 of fiscal year 2015, we expect our advanced communication business to decline significantly from Q4 of FY14 due to lower revenue from our long-haul optimal products. Revenue from our Wireless and Sensing product group was flat sequentially and represents a 10% of total revenue.

Revenue from our industrial medical products increased in Q4, offset by seasonally low revenue from our consumer sensing products. We are excited by the potential in our Wireless and Sensing business as we anticipate future revenue growth from three emerging areas.

One, low power proximity sensing platforms for mobile consumer application, two, advanced touch sensing platform in smartphone and tablet and three, low power wireless platform driven by the evolution of the Internet of Things and the associated wireless eco system.

Semtech’s low power proximity sensing platform offers the best in class sensitivity, ultra-low power and robust immunity which make them the ideal choice for application where RF interference is an issue. We expect to continue to see the broader adoption of proximity sensing solution in new mobile systems.

In addition to our proximity sensing platforms, our advanced touch sensing business is expected to see pre-production revenue starting in Q2 of fiscal year 2015 and ramping significantly in the second half as one of our smartphone customers is expected to release its first high end smartphone with our advanced touch platform.

In the industrial market, our wireless and sensing product group continues to experience tremendous interest in our ultra-low power low wireless platform. In number of global service providers are initiating trials that incorporate RR technology to connect the billions of sensors being deployed by the Internet of Things.

We expect the result of initial service provider trials to be completed in Q3 of fiscal year 2015 and orders for our lower products to ramp up in the second half of FY15.

Potential application of sensor based machine to machine networks using our wireless transceiver include connected smart parking system, smart street lighting system, fire safety system, smart irrigation system, air quality control system and smart metering systems.

In addition to this IOT application we also believe that using the Internet for asset tracking purposes is going to drive additional growth opportunities for our ultra-low power wireless transceivers as corporation use wirelessly connected sensors to track their mobile assets.

Design win momentum in both our industrial wireless business and consumer sensing business is expected to result in significant revenue growth in FY15 for our wireless and sensing product group. In Q1 of fiscal year 2015, we expect sales for our wireless and sensing product group to increase from Q4.

Now let me turn to our Power Management and High Reliability product group. In Q4, revenue increased and represented 12% of total revenue. The increase was driven primarily by growth in high end consumer application and from communication application as we are benefiting from a pick and demand from the buildup of the Chinese wireless infrastructure.

In Q4, we also experienced a record level of design wins in power management as the new product that we have introduced over the past several quarters have begun to gain traction.

During Q4, the power management business unit released new leading edge power management platforms targeted at consumer and computing applications featuring an ultra-small footprint and very high efficiency. Our Power management and High Rel business is starting to execute much better.

A new product release and design wins are begun to increase, this gives us confidence that this business is going to increase in FY15. In Q1 of fiscal year 2015, we expect our power management and high reliability revenue to be approximately flat. In Q4 of FY14 we saw total company distribution POS increased by approximately 6% over the prior quarter.

Distributed inventory decreased significantly by 14 days from 73 days in Q3 of 2014 to 59 days in Q4. This is well below our 70 to 80 days channel inventory model and indicates that the channel is under inventory due to overall demand increase. And distributed business much like the overall Semtech business is very well balanced.

With 51% of the total POS coming from consumer and enterprise computing end market and 49% of total POS coming from industrial and communication end markets. Now let me comment on our fiscal year 2014 performance.

In fiscal year 2014 revenue increased 3% from fiscal year 2013 to achieve a record $595 million, this is the seventh record revenue year in the last eight years for Semtech, other milestones in FY14 include stable non-GAAP gross margin about 60% and record 8352 design win, 89 new product releases and record $118 million of cash from operations and record Gennum product group revenues.

In addition, in FY14 Semtech was named by the Global Semiconductor Association as the best financially managed semiconductor company, was named by Forbes as one of America’s best small companies, and was named by Fortune as one of the fasted under growing companies.

We are very proud of our accomplishment and recognition in FY14 and believe we are well positioned to continue to deliver solid operating performance in the future.

While the first half of FY14 started off very strongly, inventory builds in the smartphone and communication segment and the continued push up of worldwide carrier CapEx spending in the optical long-haul segment weighed on our second half results.

However, despite the second half weakness and the potential loss of share in our long-haul optical business, we believe that with our new growth engines, diversified product portfolio and balanced end market, diverse customer base and balance sheet graphical exposure, Semtech is well positioned for future revenue and earnings growth.

Now let me discuss our recent reorganization. With the decline in our optical long-haul SerDes revenue, we needed to refocus our R&D investments on more attracted market segment. And so we made a decision in Q4 to realign our product groups.

In Q4, we merged our Gennum product group together with our optical long-haul SerDes within our advanced communication product group into a newly formed Signal Integrating product group.

This newly formed business will include all of that SerDes and clock data recovery platform and physical media platform and back playing platform and our video platforms. Our new signal integrity product group now reports to Gary Beauchamp who previously ran our Gennum business.

This new product group is responsible for leading our strategy and creating new signal integrity platform for the communication, enterprise computing and industrial market. In Q4, we also merged our timing and synchronization business with our wireless and sensing product group to form a new Wireless Sensing and Timing product group.

This new product group is a responsible for all Semtech’s wireless, sensing and timing platforms. This group is managed by Alain Dantec who previously ran our wireless and sensing product group. Our third product group is our Protection, Power and High Reliability product group and is managed by Jeff Pholman.

Jeff is already running all three sub product groups today. This product group is responsible for all Semtech’s protection, power management and high reliability platforms. In future quarters, we will report on all three product groups and we expect to provide revenue details on each of the main sub product groups.

Now let me discuss outlook for the first quarter of 2015. Based on recent strong booking trends and our backlog entering the quarter, we are currently estimating Q1 net revenue to be between $127 million and $133 million.

To attain a mid-point of that guidance range of approximately $130 million, we need a net turn orders of approximately 46% at the beginning of Q1. We expect our Q1 GAAP earnings to be between $0.10 and $0.14 per diluted share and our Q1 non-GAAP earnings to be between $0.28 and $0.32 per diluted share.

I’ll now hand the call back to the operator and Sandy and Emeka and I will be happy to answer any questions.

Operator?.

And your first question is from the line of Steve Smigie with Raymond James. Your line is open..

Great, thanks a lot guys.

Just real quickly on the sensor products, I hope if you could talk a little bit more about the touch sensor and what is it? Does that actually does and how it is may be unique from other touch sensors?.

Yes, Steve, it is a new technology. It is new capability. We are under NDA with customer until they released it is like can’t give you too much details unfortunately but it is very different. It has been in development for about three years with the customer and it is very specific to their platform.

So it is a new approach, it remained to be seen how successful that approach will be with the end consumer but it is promising..

Okay and then with the proximity sensors, can you give us any more detailed on what type of proximity sensor that it is? And provide some other –.

Yes, proximity sensors are essentially just detecting the difference between human and other materials like table and stuff like that.

When you have an LTE based radio in a tablet or any type of mobile device, it is very important that the power is reduced when you put the device on your laptop or something like that so our proximity sensing devices are somewhat differentiated.

They have a very good sensitivity and they also have very good immunity to our signals, we have seen to be getting very good traction there..

Okay and then just finally on the margin side.

Can you talk a little bit about how we should think about the OpEx dollars going over the next couple of quarters or we still see some dollar decline as the restructuring actions take place?.

Yes, you have probably seen as never before but I think my guidance will be that we would expect operating expenses to be in the $50 million to $53 million range for quarter..

Okay, great, excellent..

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

Yes, thank you. Just a clarification on the way the old advanced com segment stabilizes. I hear you’re going to talk about long-haul sureties going to $30 million a year. I thought the top sync products were about 50, 60 – $50 million to $60 million a year, so I’m getting about $20 million a quarter, which is where you are right now.

Is there something I’m missing here, or are we shipping below end demand right now?.

The top sync revenue is much more than that. And I think we are closer to $20 million a year in a number..

Okay and any implications on gross margin.

I thought these are sort of richer mix products in long-haul SerDes or you might be able to sell some written down inventory?.

The gross margin in our SerDes business were very high. They are being offset by the strength in our Gennum business.

So ordinarily with the decline in our optical long-haul business we want – one would expect the company’s gross margin to come down but I think because of some of our other businesses are doing so well and I think it is offsetting that. Emeka, do you have any –.

I think I just want to make the point with the decline in the 40 gig or 100 gigs that headwind to gross margin but I think because our Gennum business is actually doing very well and as Mohan did allude to the timing business is also very high gross margin, it is also doing very well.

I think they are really helping us to keep our gross margin towards the high end of our target range..

Okay. If I could fit one more in on Protection April guidance, people obviously expect some strong seasonality in smartphone.

You’re also talking about wearable and tablets, could you talk about those little bit more about those opportunities? And can they really move the needles versus smartphone?.

Yes, well we hope so. I mean we got good traction. The question is really will be consumers end up buying these things.

The good news is that I think smartphone business obviously Samsung got a new launch coming up and there is some other opportunities – with other manufactures and on top of that these wearable and tablets and all these are doing quite well for us.

So we have good design wins, good momentum, it is really just a question I think of how well adopted those devices become..

Okay, thank you very much..

Your next question is from the line of Harsh Kumar with Stephens. Your line is open..

Hey, guys, this is Richard in for Harsh. Just wanted to ask a question on your booking. You said it improved during the quarter.

Is there a particular product or end market that you are seeing the strength is coming from?.

Well booking out of our Gennum business has been very strong. I would say driven mostly by the – well I see all areas, the optical area from the base station, very strong, the datacenter side strong, even the video side is doing okay I’ll say.

Protection obviously because of its – as I just mentioned we are starting to see the pickup of the consumer business as well is doing quite well and then our – in general I would say wireless and sensing also starting to pick up so it’s really pretty broad.

But I would say specifically the consumer and enterprise computing segment is doing very well..

Great and then moving on to the Gennum product line.

Can you give us a sense on what you’re seeing from the competitive landscape there?.

Nothing very changed, I think on the optical side the datacom, enterprise computing side we see TI, I think Mindspeed a little bit, Maxim same competitors and then on the video side it is mostly Mindspeed and TI, no new competitors in those areas. And the Gennum business is continue to do very well..

Great, thank you..

Your next question is from the line of Andrew Huang with Sterne Agee. Your line is open..

Thanks. I just wanted to kind of take step back and looked at fiscal 2015 for full year.

So clearly you are having some big issues with advanced communications but should we think about the rest of the business – there is going to be enough strength in the rest of business to basically get flat in revenue for the full year? Is that kind of good way to think about it?.

That’s a good way to think about it, Andrew. We are going to try obviously; a lot depends on how strong the second half is and specifically some of the new areas that I talked about. We have number of good opportunities and good things happening.

For example on the touch sensing which I talked about, the proximity sensing and the wireless side, protection side of the smartphone again. And we have a bunch of other areas that I think are potentially good growth drivers for us in the second half. But yes we do have this headwind; obviously we got large revenue to offset yes..

Okay. And then along those lines like if you do manage to be flat for the year, then that would imply pretty steady ramp up each quarter.

So should we expect that there would be some opportunities for operating leverage as that happens throughout the year?.

Yes, so definitely not is against plan, I got this original one, we took some of the actions that we took with regard to operating expenses and obviously it was to respond to the current state of demand that we see now but more importantly, we took those actions to position us very nicely to really grow our earnings much faster than the revenue growth.

That’s the opportunity, that is decline and hopefully that comes up..

Thank you very much..

Your next question is from the line of Doug Freedman with RBC Capital Markets. Your line is open..

Great, thanks for taking my question, guys. Mohan, could you focus in on the Protection business for us a little bit. If that business in the back half of last year definitely struggle a bit as you mentioned the handsets some inventory.

You are guiding it if I heard correctly but we are still long way from getting back to sort of peak revenues that you saw there.

What will it take for us to see that happen again?.

Well, so if I go back to the peak was back in Q1, FY14, Doug, really the quarter before that the Q4, FY13, Samsung was building up lot of inventory for its S4 release.

And there was a huge expectation of what that demands going to look like and so in the end I think everyone realize that in the first half it was too inventory builds, the demand wasn’t strong and that affects everybody who had any Samsung business in the second half I think.

What we now gone through that now we are seeing the growth in Q1 again coming from not only build for Samsung but other product devices. But this time I think the demand is more muted. I don’t think there is – the quite the same level of expectations.

So as I mentioned in response to another question, we have a lot of design wins and lot of different applications, wearable, different types of smartphones and different communication equipment and I am pleased with the little bit more diversity in the wins and obviously if one or two these smartphones does very well then I think we can back to those high numbers.

But it’s going to be a little bit more challenging I think to get back to the $58 million – $68 million level without one of those main drivers..

All right.

If you could also look at – when we look at our business, can you give us a sense of what you think seasonality is going to look like? Are there things that you would expect to happen this year that might alter what we have been modeling for the rest of the businesses in a seasonal nature?.

For sure this year we expect the second half to be quite strongly driven by our touch sensing platform. Customers that I mentioned they will be ramping in Q3 and so that will definitely drive second half strength for us.

And if that occurs also I think the design wins in the proximity sensing and the wireless side will both materialize in the second half. So we probably are going to go back to what was historical seasonality which is Q2 and Q3 particularly much strong I think than end of the year.

And in the previous few years, comp which is a bit lumpy has been somewhat challenging to get any time of seasonality forecast going but I think this year we should see a strong Q3..

Great, thanks for taking my questions..

Your next question is from the line of Rick Schafer – Oppenheimer & Co.

Yes, thanks, guys. I guess my first question’s on the – back on the optical business for a second.

When do we expect the optical business to bottom out? Or I guess how fast or when do we get to that $30 million run rate?.

What we have modeled then that’s for Q1, Ric, so that’s what we modeled in, we are basically that we have the bottom and we will see what happens after that..

Okay, we are treating optical is upside, it sounds like if anything could be better than that – is that the right way to think of it?.

We believe so. It is difficult to say.

What’s happening in our optical business we have the (Inaudible) and the demand obviously dropped in the second half and in this business, at least in my experience in this business, many of the optical systems don’t move so quickly? It is not like a consumer business where you get designed out so quickly so my sense if a lot of carrier CapEx spend that comes back then we might see the demand come back to some extent but – we don’t want to closed up way, we have reduced our investments in this area.

It is strong for us because of the move up Huawei to an internal ASIC and so my sense is that I don’t think it is such an attractive space and therefore I think it is better to model it up at lower number and then we plan on other areas driving the growth..

Got it, got it. And my second question just real quick just to clarify that – I know last quarter you talked about a push out of one big order from one large new customer.

Is that the same customer that we are talking about for touch in the third quarter ramping?.

Yes..

Okay..

They just moved up by six months basically..

Got it, got it.

And my last question is just you guys have obviously got a pretty good successful M&A track record, I mean big of rule is M&A going to play in that billion target you threw out there for revenues? And sort of if you could give us any color or kind of steers towards what kind of technology potentially if it is interesting to you guys?.

Well, I think it is still going to play an important role in our future growth. We have really transformed the way Semtech looks today.

Our competency, our capabilities, our product lines, our new customer base, really we’ve transformed that and SMI was the first deal and while they have some challenges now we still have lot of competencies that we acquired through that acquisition that are helping us in many areas. So I think it’s important for us to continue to do that.

That is our goal to become a diversified analog company and continue to drive that approach. It’s important for us to execute organically as well, and I think we’ve always said that we won’t just go do acquisition to offset an issue we have in the company.

We have to fix the issue first and then get ourselves back on track before we can acquire new growth engines. And so I think with what we have going on in the company the beauty is there are so many new exciting emerging applications spaces that we are touching.

I think we are going to find some new opportunities to acquire some assets in potential companies. You can look at the wireless side, you can look at the sensing side, you can look at when power comes back, there is also a lot of additional product areas and IP areas we haven’t really participate in the past.

And I think they are important for us to participate in the future. So we will see. I don’t want to give you any specific areas Ric..

Okay, all right, thank you..

Your next question is from the line of James Schneider with Goldman Sachs. Your line is open..

Good afternoon and thanks for taking my question.

With regard to the proximity sensors, the ramps that you have coming up, are that primarily with one customer or are that across broader suite of customers we can talk about? Exactly how broad that will be helpful?.

Yes, so let me clarify Jim. So we have two areas. One is proximity sensing and other is touch sensing side. On the proximity sensing side we have a number of products they are going to many different customers, many different application areas.

The one that are most likely to drive the revenue are on the tablet side, handheld and kind of mobility kind of application on the proximity side. On the other side is the touch sensing side.

And the touch sensing side is a specific customer that we develop a product with over the last few years that is going to build – has already build this capability into their smartphone and will release – due to release the phone in the second half of last year, and that pushed by six months and they are going to release their first phone with this capability, pre-production Q2 and then release it in Q3..

Understand, so just to clarify, you are seeing the benefit of proximity even now in the first quarter?.

Yes..

Okay.

And then as a follow up, just want to get a sense on what you’re seeing on the distributor side of things? You talked about the channel being under inventoried? Have you seen any evidence that the POS is picking up some materially? And if so in what geographies are you seeing that?.

POS seems to be quite strong at the moment and I would say it is very broad the regions that seemed to be doing best actually are Asia, Japan, North America, are the ones that are seemed to be doing the best and then Europe also so it is fairly broad, it is not one specific area. It is a quite positive sign actually..

That’s helpful, thank you..

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

Thank you for taking my question. Mohan, I wanted to go back to the three new product groups for the higher level question.

Can you characterize the growth rate that you be satisfied with those three may be as function of TDP and as we look across the three new groups, can you help us segregate where we might see the best growth and which would be the run the list..

Yes, so first of all obviously as a company we normally stay– we wanted to grow three percentage point above industry, this year will be a little more challenging to do that just because of our advanced comp headwind. And that is Craig goes back to our signal integrity product group. So it will be more challenging for that group to grow.

However, our Gennum business is really growing very nicely. And I expect that to continue to grow double digit percentage may below low teens. So that will somewhat offset the decline in our optical long-haul business.

The fastest growing business without question if thing go to plan will be our wireless sensing and timing business because all of those sub product groups are have new growth engines and new traction and so we should see really I would say in the 20% type of range in a lot of sensing and timing business.

And then the Protection Power and the High Rel business, Protection probably in the low single digits and the Power and High Rel hopefully in the high single digit and then accelerate as we get more traction, will be the way I would look at it..

That’s helpful. And a follow up on protection.

Through your last year there was an emphasis on penetrating some of the local China smartphone manufactures, is that part of the growth strategy this year? Or should we really be focused on some of the things that you mentioned like new applications as wearable?.

I think both. We do have good relationships in Asia. We have good traction in the China region and so I do expect to get some traction there and some growth there. We don’t know enough about how successful their phones are doing in other parts of the world but certainly it is our plan to be successful in China..

Okay and then my last question. And it may be more for Emeka, at a time on the same theme working at the business with the three product groups.

Emeka, why wouldn’t there overnight or immediate period of time be an opportunity for another round of expense tightening? As the company moves to this new structure after other group have some synergies together and you can really look at where the – core capability are driving some leverage of this core capabilities?.

Right, so like I said in my prepared remarks, Craig, in working out expense reduction, I think (inaudible) to account, do remember that in the first half of last year, OpEx run rate was in the range of $60 million a quarter and now we are second down from $60 million to $ 50 million – $53 million so there is a significant reduction and I know it is probably I think I give a lot of credit to our team here, we identified the issues, we met this client we organized their businesses and that the benefit of follow up that is already incorporated into the OpEx guidance that I have given..

And let me add Craig, I think as we are at company very focused on return R&D and if we don’t see return on R&D materializing then we will change things. But I think at the end of the day we are growing very fast, now the company is diversifying and we see plenty of opportunities for us to keep driving new innovation into the market place.

So we should continue to do that I think..

Okay, last one for me. I thought when I heard your response to the earlier question from Ric on M&A, Mohan, that there seemed to be more of open door towards doing something than what I thought I detected last year which was I thought a greater emphasis on debt pay down.

Has there been a change at the margin and how are you looking at M&A? And if so how significant is it?.

No. I wouldn’t say it is changed. It is just fine. We acquired Gennum, I look for two years for us to integrate an acquisition and to get the benefit of it and start to really drive the strategies supplies and then I think with Gennum that’s doing very well.

So obviously we have this bit of headwind which has changed our thinking a little bit in a sense that we look around look at the optical long-haul space and there are some areas that are less attractive now to us. But other than that now I think we’ve always been open to it.

We just have to find the very right strategic fit and then the right financial fit also..

Make sense, thanks..

Your next question is from the line of Liwen Zhang with Blaylock. Your line is open..

Thank you for taking my questions, the first one is in terms of gross margins. You mentioned earlier gross margin would stay – likely stay at the high end of the target range.

Is this for long term?.

No, I struck in more by the expectations for probably this fiscal year, I guided for this quarter our gross margin would 59% to 60%, I would probably expect gross margin to be in that range for the year. As you know, Liwen, the key driver for our gross margin is the mix of revenues.

So if there is a quarter where you have more of bit mix towards the consumer and high end computing, you probably feel a little bit more pressure on gross margins and if we have some more of mix coming from industrial and communications, probably half more of it positive buyers towards the high end of that range.

So in the next few quarters I am expecting us to play within the 59% to 60% range..

Okay, thank you, and next one is to Emeka. I’m sorry, I’m not an engineer.

Can you tell me something about touch sensing products; is this a function that’s similar to hovering feature?.

Yes, I would say similar. That’s all I can say Liwen. As I said we are under NVA, I can’t give you any more technical details on this. But it is differentiated feature. It doesn’t exist out there today as far as I am aware..

Okay and I believe your product is like a two channel ones and some competitors’ products are one channel. What’s the difference? Maybe you can’t teach me if you don’t want to answer on the call.

What’s the difference between one two channel and a one channel?.

Well, it is just the way that the sensing is being done on the type of display and the different features set. It is really simple as that. I think each manufacture has their own architecture and they try to do different things. And some requirements just require two channels some require one..

Thank you..

(Operator Instructions). Your next question is from the line of Steve Smigie with Raymond James. Your line is open..

Great, thanks for the follow up opportunity.

Mohan, on the growth on a power side you showed reference to future growth in Power and High Rel together, just on power and could we see that portion more like a double digit type growth?.

Well, we should. I think it will take probably another I want to say six to eight months before we start to really get the traction we need. And the power business is driven by mostly giving out new products. And so we have a lot of new products that are come out last year. And we have got lot more new products coming up this year.

And as we get those new products out and we get design win we will start to see the revenue pick up. The reason why I am more bullish about the power and high rel business than I have been in the past is that we’ll always promise to get new products out but we haven’t really got out.

Now for the first really we are starting to see the products come out. And so we are seeing new switches, different type of switches, LDOs, different types of regulators, MOSFET driver, just a whole bunch of different types of products coming out that are being targeted to different application spaces.

And this is going to I think give us the opportunity to grow at a faster rate than it’s being for quite sometime..

Okay and then just with long-haul communications portion, can you talk a little bit what is still there? I mean is there some 40 gig revenue and I know you are not investing anymore; there is still some 40 gig rollout so that you translate into the datacenter or something like that?.

Well, let’s be clear. The datacenter side we are still investing in and we are doing 40 gigs and we are doing 100 gig and we are doing probably beyond that. We will continue to invest in that space. But the products that we are not investing in are the 40 gig, SerDes components that came out of the SMI acquisition.

We already target that long-haul space and so it is handful of customers and the ongoing revenue stream is both 40 gig and 100 gig and it is existing line cost, existing infrastructure, we believe that those – there will be replacement, there will be add on equipment for those networks and systems and as I said quite often when you have this internal architectural change shift to internal ASIC or other products what happens is once they really deployed in the field they may see some issues, they may need to go back to the first generation solution.

All of those could drive upside for us on the optical side. But I wouldn’t plan on it, I mean our plan is at the moment to say look –that’s kind of bottoms out unless just to leave it to that and then move on we will see and part of the reason for that is the carrier CapEx push up is being going on for a while now.

It is – I think this is now third or fourth quarter I have been mentioning it so I don’t that we should just hope that it is going to come back. When it comes back we will see with what transpires..

Okay, if I think just last one in just, within Gennum outside of the broadcast business but cost to data recovery, PMD, can you talk a little bit about what products in there will probably the addition drivers of the next year?.

Well, they are all doing very well. I mean the back plan CDRs products are doing very well. The low power CDRs doing very well. So I think those are going to continue drive growth for us. The PMD products are doing well. Amplifiers, drivers are also product all are doing quite well.

So at the moment part of it is driven by the China infrastructure deployments. I think we are gaining some share in some of these areas.

And I think that because of the technology that we Semtech have been able to bring to the table and the competence we have been able to helped with the Gennum team and sales channels also and relationship I think we are going to see more momentum in these areas..

Okay, great, thank you..

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

Yes, sorry if I missed did you report the number of designer wins in the quarter and the number of new products and how much should we rate that given your advanced comp restructuring?.

We did report it. I had in my script, design win numbers and design new products..

From the design win perspective it was – third quarter 2398, new design wins or it is followed by new products. New products on the quarter we introduced 89.

That for the year..

Outside for the year..

We will get back to you on that..

We will get you on follow up again..

Lots of that is outside the advanced comp 40 gig and how many gig side?.

Okay, so record design wins despite the advanced comp exit, okay, I got it. Thanks..

There are no further question at this time. I will turn the call back over to our presenters..

Okay, in closing fiscal year 2014 was a mix year for Semtech. We achieved record revenues, released many new products, achieved record design wins and reduced operating expenses to better align our spending with demand. We also maintained our non-GAAP gross profit margin of high end of our target range.

Our focus for the coming year will be to invest in new areas to grow the top line and execute on our cost reduction objectives as we strive to achieve our long-term operating target model of billion dollars in revenue, 60% gross margin and 30% operating margin on a non-GAAP basis.

We believe our end market balance, customer diversification and refined focused with the three new product groups will enable us to continue to return value to our shareholders. With that we appreciate your continued support of Semtech and look forward to updating you on next quarter. Thank you..

Ladies and gentlemen, that concludes today’s conference call. And you may now disconnect..