image
Technology - Semiconductors - NASDAQ - US
$ 44.1
-6.82 %
$ 3.32 B
Market Cap
-3.25
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2022 - Q3
image
Operator

Greetings. Welcome to the Semtech Corporation Q3 FY '22 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, VP of Investor Relations, Sandy Harrison. You may begin..

William Harrison

Great. Thank you, Carl, and welcome to Semtech's conference call to discuss our third quarter fiscal year 2022 financial results. 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 was issued after the market closed today and is available on our website at 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 and in the other Risk Factors section of our most recent periodic reports filed with the Securities and Exchange Commission.

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

Other references made to financials -- all the references made to financial results in Mohan's and Emeka's prepared remarks during this call will refer to non-GAAP financial measures, unless otherwise noted.

A discussion of why the management team considers such non-GAAP financial measures useful, along with detailed reconciliations of the non-GAAP measures to the most comparable GAAP financial measures are included in today's press release. And with that, I will turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu.

Emeka?.

Emeka Chukwu

Thank you, Sandy. Good afternoon, everyone. As is our practice, I will focus my comments on our non-GAAP financial results, unless otherwise noted.

In Q3 fiscal year '22, the company delivered a very strong financial performance that included achieving a number of new financial records, including net sales of $194.9 million, that increased 5% sequentially and 27% year-over-year and was above the midpoint of our guidance.

Continued momentum and record results by several of our key growth platforms contributed to the strong net sales performance. In Q3, shipments into Asia, North America and Europe represented 78%, 12% and 10%, respectively.

While this represented a shift to addresses for our distributors and customers, we estimate that approximately 35% of our shipments are consumed in China, 27% in the Americas and the balance over the rest of the world. Total direct sales represented approximately 12% of net sales, and distribution net sales represented approximately 88%.

Our distributor POS represented another quarterly record, and the business remains balanced with approximately 41%, 32% and 27% of the total POS coming from the infrastructure, industrial and high-end consumer end markets, respectively.

In Q3, bookings increased 16% year-over-year, and those bookings accounted for approximately 3% of our Q3 shipments. The Q3 gross margin increased 110 basis points sequentially to 63.8%, which represented the upper end of our guidance range and the new quarterly record, led by a more favorable product mix.

Going forward, we expect our gross margin to continue to benefit from the retail mix of sales from our key growth platforms that include LoRa-enabled, our 10G PON, our Tri-Edge PAM4 CDRs and our broad-based industrial protection products.

For Q4, we expect gross margin to continue to expand as we anticipate a more favorable mix due to a seasonally lower high-end consumer net sales.

For planning and modeling purposes, we expect our gross margin to remain at current levels with an upward bias over the next several quarters, reflecting the benefit from the growth of our secular growth platforms. In Q3, operating expenses increased 2% to $67.5 million, driven by higher new product development expenses.

For Q4, we expect our operating expense to be in line to slightly above current levels. Looking ahead to fiscal year '23, we expect our operating expense to begin to trend back towards our target model of half the rate of net sales growth.

In Q3, operating profit increased 14% sequentially or nearly 3x that of net sales and increased 51% on a year-over-year basis, led by the higher gross margin and represented a record operating profit. Operating margin expanded by 210 basis points sequentially to 29.2% and represented solid progress towards our 32% to 36% long-term target model.

As expected, we are seeing the strong operating leverage expected for the success of our growth platforms.

In Q3, cash flow from operations was a record $66.5 million, up 26% sequentially and represented 34% of net sales as a result of the record operating profit and good management of working capital, while free cash flow increased 33% sequentially to 31% of net sales.

Free cash flow generation in fiscal year 2022 has been strong despite the strategic actions to maintain higher levels of inventory. And we expect to end the year around the low end of our long-term free cash flow target of 25% to 30% of net sales, which will be a significant expansion from the prior year.

In Q3, we repurchased approximately $30 million or 0.6% of our outstanding stock, resulting in $292 million remaining in our outstanding authorization, and we expect to continue to use our cash to opportunistically repurchase as our shares, make strategic investments and pay down the debt.

The Q3 accounts receivable increased 2% sequentially to $74 million, while days of sales was flat with the prior quarter at 34 days and remains below our target range of 40 to 45 days. In Q3, net inventory in absolute dollar terms increased 2% sequentially, and days of inventory increased 4 days sequentially to 133 days.

We expect net inventory to remain above our target range of 90 to 100 days to support the stronger demand and the better supply chain environment.

In summary, the success of our growth engines of LoRa-enabled, our Tri-Edge PAM4, 10-gig PON ,5G wireless and broad-based protection platforms enabled us to deliver a record net sales, a record gross margin, record operating profit, record earnings per share and record cash flow in Q3.

We expect the sustainable long-term growth from these key growth engines and the underlying secular drivers that continue to drive record financial performance for fiscal year '22 and provide a strong momentum as we move into fiscal year '23. I will now hand the call over to Mohan..

Mohan Maheswaran

a collaboration with Cloud Energy, a leading IoT solution provider in Asia, to develop and deploy LoRaWAN networks for rooftop, wireless, solar power systems.

Ryoden Corporation, a LoRa solution and network provider, announced a new zero carbon solution, featuring a Renesas microcontroller and our LoRa Edge platform to connect a batteryless sensor directly to the LoRa cloud, enabling geolocation capabilities for the tracking of personal valuables, logistics assets, animals and health care assets.

And IQnexus and end-to-end IoT solutions and integration provider for building automation, incorporated LoRa into its indoor air quality and environmental quality sensors, which reduce carbon dioxide emissions. These are just a few examples of the numerous LoRa use cases emerging to combat climate change.

In Q3, Microsoft announced it has joined the LoRa Alliance and has accepted a seat on a LoRa Alliance Board. Microsoft Azure is widely considered a Tier 1 enterprise cloud partner for many IoT deployments, and we expect their participation, along with other top-tier cloud providers, like AWS, to further strengthen LoRa's presence in the LPWAN market.

In Q3, our LoRa business metrics continue to make solid progress against our FY '22 targets. The number of global LoRaWAN network operators grew to 163, and we are expecting 165 LoRaWAN network operators by the end of FY '22.

The cumulative number of LoRa end nodes deployed increased to 225 million, and we expect this number to exceed 236 million cumulative end nodes by the end of FY '22. The number of LoRa gateways deployed increased to over 2.7 million and has already exceeded the goal we set for the full year.

We now expect to have 3 million gateways deployed by the end of FY '22. The LoRa opportunity pipeline increased to over $900 million and has also exceeded our FY '22 year-end target. We are increasing our pipeline target for FY '22 to $950 million.

We anticipate that approximately 40% of the opportunities currently in the pipeline will convert to deployments on average over a 24-month time line. We believe the momentum of our metrics, along with the increasing influence of the LoRa Alliance and its members will help enable LoRa to become the de facto standard for the fast-growing LPWAN market.

In Q3, demand for our proximity sensing platforms softened following last quarter's record revenues. Our sensing platforms provide the industry's most advanced and highly integrated SAR sensing technology for mobile and wearable devices.

The increasing adoption of 5G phones and use of high-powered cellular and WiFi radios is expected to result in more stringent RF power regulations globally.

This trend is expected to contribute to increased demand for our proximity sensing platforms over the next few years as we anticipate that several countries in Asia will enforce stricter SAR regulations over the next 2 years.

For Q4 of fiscal year '22, we expect net revenues from our Wireless and Sensing Product Group to decrease as record results expected from our LoRa business are expected to be offset by seasonally lower consumer revenue. Moving on to new products and design wins.

In Q3, we released 23 new products and achieved a record number of new design wins of 3,792. Now let me discuss our outlook for the fourth quarter of FY '22. We entered Q4 with record backlog and are currently estimating Q4 net revenues to be between $184 million and $194 million.

To attain the midpoint of our guidance range or approximately $189 million, we needed net terms orders of approximately 3% at the beginning of Q4. We expect our Q4 non-GAAP earnings to be between $0.65 and $0.73 per diluted share. II will now hand the call back to the operator. And Sandy, Emeka and I will be happy to answer any questions.

Operator?.

Operator

[Operator Instructions]. Our first question is from Tore Svanberg with Stifel..

Tore Svanberg

Yes. Congratulations on the record results. First question is on your comment about data center and specifically PAM4, I believe you said PAM4 will double next year. Could you maybe talk to some of the specific deployments there, Mohan? And it also sounds like sequentially that's going to drive the Signal Integrity business.

So again, I assume that's the beginning of some new deployments that you're benefiting from there..

Mohan Maheswaran

Yes, that's right, Tore. We've got quite a few things going on in the data center business, but specifically in the PAM4 area. For us, the only products we have out at the moment are the short-reach products that can go into optical modules for mostly 200-gig, its 4x50 and some 400-gig applications.

We have, as I mentioned, a new series of products that are planned to come out over the next few quarters for longer reach. And I think when we have that broader portfolio, we're going to see even more momentum there.

But the momentum on short reach alone is going to drive very, very significant growth for us next year, as I said, 100% growth and then beyond that, for sure. So we're very excited about the opportunity there.

And not only Tri-Edge PAM4 for our data center business, but also our 50-gigabit per second PAM4 Tri-Edge platform for base station optical modules is also getting extremely good feedback from the marketplace. So we're very optimistic about that also..

Tore Svanberg

Very good. And as a follow-up, your PON business has been on a tear. Really, it's been one of your stronger businesses on a year-over-year basis.

Is there anything that you can share with us to give us conviction that there's still upgrade cycles happening there to sustain this momentum in 10-gig PON?.

Mohan Maheswaran

Yes, for sure. I mean PON, in general, first of all, globally, I think one of the nice things about PON is it's become a lot more of a global technology. For a while, it was very much China that was driving the business and the deployments.

But what we've seen and while we've seen China tenders continue and driving good deployments, we're also starting to see North America and Europe now starting to drive tenders out there, and that's going to drive further growth. And we're definitely seeing that kind of globalization across many different OEMs now building PON platforms.

So pretty excited about it. I think obviously, access bandwidth is critical. You can have all the bandwidth you want coming to the access point, but if you have a bottleneck there, then that defeats the whole purpose. And I think 10-gig PON is definitely seeing good growth, and will continue to.

And I think we're likely to see higher bandwidth upon developments over the next few years. So very encouraged by the growth in PON..

Tore Svanberg

Okay. Just one last question on LoRa. So it sounds like the smart home smart neighborhood is starting to ramp.

Is that primarily North America? Or are you seeing that ramp in other regions as well?.

Mohan Maheswaran

We're seeing it ramp across the board, I would say. The majority of the strength is in North America. I would say that it's a number of different players. Obviously, the Amazon Sidewalk initiative is yet to come. So that's still, I think, something that probably second half of next year, we're going to see that ramp.

But definitely, we're seeing a whole bunch of other initiatives, including the Helium rollout. We've seen kind of this emergence of this campus networks.

Now one of the things that's really transpired and really exciting for us is that LoRa which is predominantly a range-driven technology, low power long range driven technology, but we're seeing in that kind of half a mile to 5-mile range, LoRa really starting to get adopted as well, which is pretty exciting because it opens up a whole bunch of use cases that makes the market, essentially the LPWAN market become much bigger, and I think we'll grow faster..

Tore Svanberg

Congratulations again..

Mohan Maheswaran

Thank you..

Operator

Our next question is from Tristan Gerra with Robert W. Baird..

Tristan Gerra

You talked about both PON and data center increasing sequentially. And I know you've mentioned -- you just mentioned that PON is now diversifying away from China. So it looks like you're still weathering the China slowdown better than the way some other companies have characterized it recently.

Could you talk about what you're seeing there in that geography? And whether, if indeed, you're seeing a slowdown, it will have meant higher outlook for this quarter at the top line?.

Mohan Maheswaran

Yes. I think, Tristan, it's very segment-dependent on which segment you're focused on. We've definitely seen slowing down in China smartphones, for example, in the consumer business in general. I would say infrastructure is quite healthy still. I would say IoT is still quite healthy. So it really does depend on which segment.

And I think that's we're seeing that across the board. And that's the beauty of being a balanced business like we are and having diversification and having end market diversification, but also geographical diversification is that when one area is weak, other areas are strong. And so just having the diversification helps that.

So -- yes but to answer your question, I think it really is segment-specific. And we've seen more weakness in the China consumer business than we have in other areas..

Tristan Gerra

Great. And then could you talk about your expectation about price contributing to your top line over the next few quarters. You were mentioning early this year about your expectations for price increases in the second half, which also could benefit gross margin.

And as those price increases, perhaps continuing and with the ones that you've already done, is that going to contribute next year to the growth in addition to whatever you're going to see in units?.

Mohan Maheswaran

Possibly, Tristan. But I think most of our price increases have been really driven by increases in our supply chain costs. So we have focused very much on when we've had an increase in wafer costs or specifically cost for a specific product, whether it be fab or assembly and test-related trying to pass that on to our customer base.

So -- and that is definitely helping us offset some of those supply chain cost increases by providing ASP increases. I don't think that we will necessarily continue to do that unless we are seeing more supply chain action, which is possible because supply chain cycle times are extremely long.

When you have long cycle times like that, typically, one of the things that -- that drives is higher pricing generally. So at least until all the CapEx and all the investments are in place, and that typically takes several years, so it's possible we see it, but we're not counting on that..

Operator

Our next question is from Harsh Kumar with Piper Sandler..

Harsh Kumar

First of all, congratulations. Very solid results. Mohan, I had two for you. You mentioned there was softness in the data center business last quarter that you just reported, and then you expect things to improve. I was curious in your opinion, what might have caused that softness.

And then also, what are you seeing that gives you the confidence that things are improving in the data center? And then I have a follow-up..

Mohan Maheswaran

So I think it's -- from our standpoint, Harsh, a lot of the shift in what's going on in the market. So 100-gig optical modules and maybe there's some excess inventory out there of product, but the newer PAM4 deployments where they have no inventory, I think we're starting to see those ramp up quite fast.

And we have pretty much those design wins in the bag. And so it's really design win driven. So I think we are fairly comfortable about where Q4 is and also next year for our data center business. It does tend to be lumpy. All the infrastructure businesses are a little bit lumpy.

You'll get a quarter or 2 of deployments or CapEx spending, and then there will be some management of inventory, and then you'll see it come back again. But for sure, at least for 100-gig, PAM4 200-gig, 400-gig and then 5G base stations and for 10-gig PON, it's going to be up and to the right.

There's no question that those deployments are going to continue to grow year-on-year.

It's just a question of timing, right?.

Harsh Kumar

Understood, Mohan. And then I had a question on PON. I seem to recall in one of your presentations that the 10-gig PON, you guys are playing on both sides of the wire, whereas for 1-gig PON and 2.5, you were just on one side of the wire.

So I was curious if that is an accurate assessment, which would imply, if that's correct, that your content went up quite a bit.

And then as a side question to that is, I was curious you would be willing to give us how much PON is as a percentage of revenue?.

Mohan Maheswaran

So everything you said is accurate, Harsh. PON -- 10-gig PON, we are playing on both the central office end and the ONU end, the OLT end and the ONU side. And obviously, the ASPs are higher on the OLT side. So that's good. It also is, if you sell a broad chipset like that, the complete chipset, that gives you a very strong position with your customers.

And so that's also a very good thing, I think. And so strategically, we're very comfortable with where we are. With regard to percentage, Sandy, I don't know if you have that or if we can provide that. Let me see..

William Harrison

Yes. So Harsh, the PON's typically been somewhere in sort of the low to mid-teens. It's probably running at the upper end of that this year, year-to-date..

Harsh Kumar

That's good enough for me. Congrats guys..

Operator

Our next question is from Craig Ellis with B. Riley Securities..

Craig Ellis

Congratulations on the very strong quarter and outlook. Mohan, I wanted to start just by getting some further color on what you're seeing with order activity and backlog growth. Backlog is clearly very strong with just 3% turns coverage needed to meet guidance.

So what are you seeing there? And are there particular areas of the business where you're seeing more significant order intake and backlog expansion?.

Mohan Maheswaran

Yes. Orders continue to be very strong. Backlog is obviously very healthy given what we've just mentioned on turns there. So everything is looking quite good there. I would say, there are pockets of extremely very good strength and PON is clearly one of those. LoRa, obviously, is another area.

Our protection IPA business, which is very broad, very, very strong. So there are some nice pockets. Areas of weakness, I mentioned China, smartphone consumer, not totally unexpected coming towards the end of the year, and it's kind of been a funky couple of years here. So some of the typical seasonality. That's what we expect to see.

So it's not totally unusual. But I would say, Craig, that at the moment, everything is still very, very strong..

Craig Ellis

That's real helpful. And then I wanted to go from there and just talk a little bit about the industrial activity inside of protection. So great to see the 31% sequential growth.

And I was wondering if you could point out some of the things within that very broad end market that are seeing particular strength? And how sustainable do you think that strength is as we look out into the first half of calendar '22? And what do you think is driving that strength?.

Mohan Maheswaran

Yes. So I do think it's sustainable. Q4, we'd expect to be a little bit soft. But I think as Q1, certainly in the first half of next year, I'd expect it to be strong again. It's in multiple segments. So it's communications, it's automotive, it's broad-based interfaces, USB-C, HDMI.

So it's a very broad set of interfaces being protected as well as different segments. Automotive, particularly, I think, is strong, and communications there is quite strong. Now if you think about what -- the kind of sustainability of it, this is really the mass market. It's not 10 customers, it's thousands of customers.

And so what we're really seeing is the broad market now starting to use advanced lithography processes and controllers and DSPs. And as they starting to use those advanced lithography devices, I think the -- it really kind of fits our strategy and our -- the adoption of our protection into those segments very well.

And so that's really what's driving it, Craig, the adoption of these leading-edge geometries and the need for our kind of high-end protection, which is what we've been saying for a while, but we have -- obviously, in the consumer segment, we've proven that capability.

But we've been waiting in a sense for the broader market to kind of come to us and now I think it's coming..

Craig Ellis

Yes. Nice to see the market coming to you, especially one that has real nice margin characteristics. I don't want to ignore Emeka. Emeka, great to see the real strong gross margin.

I just wanted to see if there was any further color you could provide on some of the some of the particular pluses in the quarter since we were at the very high end of guidance and at least 50 basis points above what I was expecting..

Emeka Chukwu

So thank you, Craig. And it's okay, I do not feel like ignored at all. But our gross margin story has definitely been a highlight for us. And it's actually very pleasing to see these numbers playing out given the expectations that we've had for a while.

If you recall in the past, we've talked about the growth drivers, right, of LoRa-enabled, the 10-gig PON, the PAM4 CDRs, broad-based protection devices. We talked about all of that coming with much higher gross margins than the corporate average. So it's nice to see that playing out.

And that's essentially the story, right? Our gross margin expansion story is pretty simple, it is just that of mix..

Operator

Our Next question is from Christopher Rolland with Susquehanna..

Christopher Rolland

I guess my questions are mostly around LoRa. So I guess for LoRa, in terms of like an innovation treadmill, what kind of improvements do you think we might be able to see with LoRa? And then with Helium, for example, it's so backlogged right now. It seems like you guys would have a ton of pricing power, particularly for gateway chips.

Maybe talk about your pricing power for those chips today. And remind me what the average ASP per base station is as well..

Mohan Maheswaran

Let me start with that, Chris. I think it varies. But I think for the lower end base station, the kind of home base stations, we're talking between $5 and $30, depending on which version and things like that. And you're right, the pricing power is definitely with us.

But remember, our strategy is to deploy gateways everywhere in the world and get -- we want Helium's distributed wireless network to be very successful and to be essentially connectivity to be out there in every country in the world in every neighborhood in the world and LoRa connectivity to be just not an issue for use cases.

And that's been -- always been the goal that we've had. So that's why I comment on the number of gateways out there and the number of sensors that can be deployed because the real goal for us is to get sensors deployed and connected to those gateways. That can't happen if you don't have gateways.

And so now the beauty about the Helium kind of decentralized network is it kind of allows really viral connectivity, if you like, to the network. And so we're very excited by it. But I think they're -- if I look at all the other networks around the world today, they're now starting to get really utilized the way we had envisioned them being utilized.

And we've got roaming agreements. We've got companies using networks for private enterprises. We've got also public network stuff going on. It just really is starting to play out the way we had anticipated. So very excited by it, but yes, clearly, the Helium network is -- momentum is very, very positive..

Christopher Rolland

Yes. I have been super impressed, Mohan, and I agree with your -- the viral statement around Helium. I have 1 miner, I love it. I have an order for 3 more out there. And that kind of brings up my second question here.

And that is in terms of LoRa gateways, I guess, entering the year, if my numbers are right, I think you had maybe 1.3 million gateways and you're adding -- that's in your entire existence, and now you're adding 1.7 million this year, just massive growth on the gateway side.

So I guess my question is, how confident are you? Or into the visibility in between, what is actually Helium? And what are in these campus programs or neighborhood programs or industrial programs? How confident are you that these aren't Helium orders like, for example, the 3 that I have on back order, for example? Are you sure that if the helium network growth were to slow down, that it really wouldn't affect the growth for LoRa like we've been seeing?.

Mohan Maheswaran

Well, and I kind of answered that question, Chris, because our focus is on the sensor connectivity. We just started an initiative, for example, to get a billion sensors connected to combat climate change as an example of that.

And the sensor connectivity can be obviously the macro gateways, which are the bigger gateways that sit out on a tower can connect to many more sensors and have much more range. And so I think it's more for us use case driven. We do have fairly good visibility into where the gateways are going and what they're doing.

But frankly, I think it doesn't matter that much. I think it's more a question of are they use cases? And are the use cases really starting to be utilized in a way that demonstrates the value of LoRa? Sidewalk is a good example of that.

And Sidewalk, obviously, we're anticipating at some point here next year amazon will start to roll it out, and we'll start to get sensors connected to it and then there will be -- new use cases emerge.

Because the beauty about LoRa and the world of LoRaWAN here and the LPWAN market that's going on, there's is a lot of the use cases are just beginning, I mean, really just beginning.

And people are starting to see, oh, I can use LoRa for this, and I can use it for satellite connectivity or I can use it for agriculture, I can use it for smart home deployments or I can use it for geolocation and tracking an asset.

And this type of -- kind of, as I said, viral use case offers the opportunity to really expand the market quickly and to make it very, very large, which is obviously our intent, right?.

Christopher Rolland

Yes. well, great growth..

Mohan Maheswaran

Thank you..

Operator

Our next question is from Karl Ackerman with Cowen..

Karl Ackerman

Yes. Two questions, please. The first one is piggybacking on LoRa. It's great to see LoRa is now integrated into AWS and Azure.

But is the go-to-market still predominantly driven by your own sales force? I'm curious how do you see the go-to-market changing, if at all, now that you do have broader ecosystem support from the larger hyperscalers?.

Mohan Maheswaran

Yes. I think, Karl, the -- our sales force, obviously, has a critical role to play in the adoption of LoRa and the marketing of LoRa and the communication of how LoRa is succeeding in the market. But we have a LoRa Alliance.

So the Alliance has got, as I mentioned before, 400 to 500 members, including Microsoft and AWS and Cisco and IBM and many, many companies out there at all levels of the value chain. So you've got sensor companies, chip companies, gateway companies, software companies, system integrators.

And so LoRa is just simply a technology, right? And it's just a technology platform here. . But the use cases typically require several members of the ecosystem to participate and get together and figure out an end-to-end -- to figure out an end-to-end solution.

And so I think it's really the power of the alliance and the kind of pervasive nature of what's happening with LoRa now that's driving the momentum. I don't know that it's -- if we added a sales guy or 10 salespeople, that would necessarily have a massive additional benefit.

I think it's more about getting the right system integrators in, getting the right use cases, so people can look at the use case and say, "Hey, that's interesting, I want to do that." Getting the right sense of technologies out there, software, making sure there's no bottlenecks in the software.

I always talk about bottlenecks in the ecosystem, and those bottlenecks have moved. It used to be sensors, and it used to be hardware-related, now it's more software-related.

And so the addition of Microsoft Azure and AWS really, really does add a tremendous value because many companies would have struggled to build a back-end software platform for their use case. But having the ability to go to Microsoft or to go to AWS and partner with them, to get that access, I think, really changes the time-to-market aspect of it..

Karl Ackerman

Yes, understood. That's helpful. My follow-up is more of a clarification.

If PAM4 is high teens as a percent of sales this year, does that mean NRZ is equally as large this year? And is there a notable margin difference between the CDRs and optical ICs supporting each technology?.

Mohan Maheswaran

Yes. NRZ is larger. Obviously, it's been around for a while, and I think that's the key point to make is that when you look at PAM4, it's -- at least for us, it's a fairly new platform. Tri-Edge is just really been released to production, the short-reach use cases. And so we've got good design win momentum.

And really the point being that as we see -- get the momentum, the growth in that business is fairly significant. And so we're expecting PAM4, 200-gig PAM4, 400-gig PAM4 deployments next year to accelerate quite nicely..

Operator

Our next question is from Quinn Bolton with Needham & Co..

Nathaniel Bolton

Congratulations on the nice results. Maybe just a quick follow-up on that last question on the PAM4.

One, do you say high teens in terms of absolute millions of dollars? Or is it a high-teen percentage of revenues, maybe I missed it? And then does it all -- is that only Tri-Edge? Or does it also include the FiberEdge PMDs? And then I've got a couple of follow-ups..

Mohan Maheswaran

Yes, it's high teens in terms of millions of dollars, and that it does include FiberEdge, but I would say the majority of the growth is coming from Tri-Edge..

Nathaniel Bolton

Got it. And then looking to just the overall supply chain, I know you mentioned some of your business is constrained, especially on the consumer side by component availability of other manufacturers. Just wondering if you're seeing any supply constraints in your own perhaps more back-end and front-end supply chain.

And I know a number of analog companies through the fall had experienced shutdowns or COVID related effects out of Southeast Asia, wondering if that had any impact on your business this quarter?.

Mohan Maheswaran

Not really. I would say that it's kind of been pretty consistent for us over the last couple of quarters, same type of issues. Obviously, some fabs are full, and their cycle times are quite long. I would say, in general, across the whole supply chain, cycle times have doubled over the last year or so.

So we've gone from an average of 20 weeks to maybe 40 weeks cycle time. So that's significant. And so that's across the board, and that's an average. There are pockets where it's longer than that, and there are pockets where it's not such a big problem. But I would say, in general, supply chain is still a major challenge. But we're okay.

We -- obviously, we built inventory. We plan on building inventory. We are using that inventory to continuously make sure our customers are -- manufacturing lines are running and not -- we're not in the bottleneck.

We do know, as I mentioned in my prepared remarks, that some of our customers are struggling to get all of the components to build a complete system. And so that has an impact on kind of a short-term demand impact. But I think in the medium term, that will clear up..

Nathaniel Bolton

Got it. And my last question, Mohan.

Just any update on the LoRa micro services part of the business?.

Mohan Maheswaran

Yes. So the cloud services is going well.

I think, obviously, LoRa Edge is the platform there and bringing on board Microsoft Azure and now AWS, I think we have partners that we can work with very closely and our customers, and we've started to now look at what elements of the cloud service geolocation performance needs to be changed to make sure we have an end-to-end solution.

But I think at the moment, no real significant breakthroughs there, but I would say good momentum. And I think you're going to hear a lot more about that next year..

Operator

Our next question is from Rick Schafer with Oppenheimer..

Richard Schafer

Congratulations, guys. A lot of good questions already. But just if I could sneak one more in on LoRa. I was hoping you could give a sense maybe of expected LoRa linearity next year.

I mean, does it seem like seasonality is really relevant at this point for LoRa? So if you kind of look at just the run rate you're on now, it seems like 40% growth sort of makes a lot -- make sense, right, next year.

So I was just curious if you could comment on that and give a sense maybe what type of backlog or just general visibility you have on that business today?.

Mohan Maheswaran

Yes. I think it's pretty good, Rick, I would say, for the first half, but a lot depends on the funnel and the -- how quickly that funnel moves to deployments. Obviously, it's grown now to a large size, the funnel, and we're anticipating some of those tend to go into the full deployments. But the momentum is very good.

And I think everything we had anticipated in terms of design-ins and design wins from these -- from the funnel. And I think in general, the number of use cases that are emerging and starting to get deployed without our help, I think, is very encouraging. So I think the 40% for next year is looking pretty good as well..

Richard Schafer

And then just a quick follow-up on gross margin. I mean obviously, looks fantastic. I mean it seems like mid-60s is sort of the new baseline. And I'm just curious there, as we look forward to not that far out, I mean looking at the kind of growth you guys are putting up, you're not that far out from your $1 billion top line run rate kind of goal.

So I'm curious sort of where you think or where you see gross margin once we're at that $1 billion run rate? And then just a quick clarification on next year. I know you talked about ASP.

But I'm curious, do you see that as a tailwind for gross margin next year?.

Emeka Chukwu

So Rick, this is Emeka. So the gross margin, like I said before in my prepared remarks, it's mostly being driven by the mix of revenue. As we're seeing a higher revenue contribution from our growth platforms, we are -- that is helping us to drive our gross margin expansion.

We are definitely looking at where we have our target range for gross margin at $1 billion of revenue, it is going to be driven by how that revenue is coming in.

But in terms of mid-60s and stuff like that, that is a possibility, but we just have to wait before we start setting those expectations, we have to wait and see what's going on with the current supply chain environment, right? There you saw is -- if we continue to see price increases from the supply chain that you saw, there is so much that our customers will be able to absorb.

So that is something that we're keeping an eye on. But I share your sentiment that as we continue to see revenue contributions growing from the new product platforms that we've talked about that we should continuously gross margins headed into the mid-60s and maybe beyond. But we we're not going to sign up for those at this point..

Operator

[Operator Instructions] Our next question is from Harsh Kumar with Piper Sandler..

Harsh Kumar

Yes. Mohan, I had an interesting one. Not specific to your company, but just more so on the industry. A lot of companies that have reported numbers,, results in the last 3 to 6 months have basically buck seasonality. There's been -- just because the demand has been so high, that it's kind of like up to the right.

I noticed that you guys are guiding seasonal, particularly, it seems like from a consumer and a couple of other small things. But I'm curious if we are back to demand-supply situation where seasonality is coming into play.

Or is it just, do you think something specific to some of your businesses that you have?.

Mohan Maheswaran

Well, the seasonality is tied to consumer, as you noticed, Harsh. And I think that it's not a surprise. Some of that, as I mentioned, I think in my prepared remarks, is our customers not being able to get all the parts they need, I think. So there's a little bit of that playing into it. But I do think there's going to be some seasonality here.

You're right, though. I mean, the demand environment is very strong. People are constrained. And so to some extent, you can play that game. We typically are shipping to consumption. That's what we're trying to do. We're not trying to do anything more than that. And we keep a very close eye on POS, and so that's kind of our thinking.

If the channel is shipping into customers and demand continues to be strong, then Q1 will be very strong..

Operator

We have reached the end of the question-and-answer session, and I will now turn the call over to CEO and President, Mohan Maheswaran, for closing remarks..

Mohan Maheswaran

record net revenues, record gross margins, record operating income, record earnings per share and record operating cash flow. The secular demand trends driving our growth engines in the infrastructure, smarter planet and mobility markets remain strong and are expected to provide sustainable long-term growth.

We expect our diverse and growing product offering and balanced end markets to drive a record financial performance in FY '22 and provide strong momentum going into FY '23. With that, we appreciate your continued support of Semtech and look forward to updating you all next quarter. Thank you..

Operator

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation..

ALL TRANSCRIPTS
2024 Q-4 Q-3 Q-2 Q-1
2023 Q-4 Q-3 Q-2 Q-1
2022 Q-4 Q-3 Q-2 Q-1
2021 Q-4 Q-3 Q-2 Q-1
2020 Q-4 Q-3 Q-2 Q-1
2019 Q-4 Q-3 Q-2 Q-1
2018 Q-4 Q-3 Q-2 Q-1
2017 Q-4 Q-3 Q-2 Q-1
2016 Q-4 Q-3 Q-2 Q-1
2015 Q-4 Q-3 Q-2 Q-1
2014 Q-4 Q-3 Q-2 Q-1