Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Fourth Quarter Fiscal Year 2023 Financial Results Q&A session. [Operator Instructions]. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to Ms. Chelsea Heffernan, Vice President of Investor Relations. Ms. Heffernan, you may begin.

Thank you, and good afternoon. Joining me on today's call is John Forsyth, Cirrus Logic's Chief Executive Officer; and Venk Nathamuni, Chief Financial Officer. Today, at approximately 4:00 p.m. Eastern Time, we announced our financial results for the fourth quarter and full fiscal year 2023. The shareholder letter discussing our financial results, the earnings press release and the webcast of this Q&A session are all available on the company's Investor Relations website. This call will feature questions from analysts covering our company. Additionally, the results and guidance we will discuss on this call will include non-GAAP financial measures that exclude certain items. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in our earnings release and are all available on the company's Investor Relations website. Please note that during this session, we may make projections and other forward-looking statements that are subject to risks and uncertainties that may cause actual results to differ materially from projections. By providing this information, the company expressly disclaims any obligation to update or revise any projections or forward-looking statements, whether as a result of new development or otherwise. Please refer to the press release and the shareholder letter issued today, which are available on the Cirrus Logic website and the latest Form 10-K as well as other corporate filings registered with the Securities and Exchange Commission, for additional discussion of risk factors that could cause actual results to differ materially from current expectations. Now I'd like to turn the call over to John.

Thank you, Chelsea, and thank you, everyone, for joining today's call. As you have seen in the press release, in FY '23, Cirrus Logic delivered record full fiscal year revenue of $1.9 billion, up 7% year-over-year driven by higher sales of components shipping and smartphones. Venk is going to discuss those results in greater detail shortly. But before we get to that, I'd like to take a moment to highlight the progress we've made on our long-term growth strategy over the last year. The 3 key pillars of that strategy include: one, maintaining our leadership position in smartphone audio by continuing to deliver world-class products and outstanding execution to the strongest customers in the market. Two, increasing high-performance mixed-signal content in smartphones to build a growing footprint of products outside of audio. And three, leveraging our strength in audio and high-performance mixed signal to expand into additional applications and markets over time with new and existing components. Looking at the first pillar of that strategy, Cirrus Logic remains a clear leader in smartphone audio. Today, 17 of the top 20 smartphone devices in DXOMARK audio quality rankings used Cirrus Logic audio components. In Q4, several Android customers introduced flagship devices that utilize our boosted amplifiers and we anticipate a number of new smartphones using our audio components to be launched later this calendar year. During the year, our team also began design of our next-generation custom boosted amplifier and our next-generation 22-nanometer smart codec, both of which are now in advanced stages of development. We anticipate that these next-generation audio components will not only extend our leadership position in smartphone audio, but also deliver significant revenue for many years following their introduction. Turning to the second key element of our growth strategy, increasing high-performance mix content in smartphones is critical…

Thank you, John, and good afternoon, everyone. I'll start with a summary of our financial results for both our fiscal Q4 and full year fiscal '23 and then provide guidance for our fiscal Q1 '24. As John mentioned, we delivered record fiscal '23 revenue of $1.9 billion, which is up 7% from a year ago. The strong growth during the fiscal year was driven by higher ASPs as well as the continued benefit from prior year content gains in smartphones, which were partially offset by a softening in general market and smartphone demand. Fiscal fourth quarter revenue was $372.8 million, down 37% quarter-over-quarter and down 24% from a year ago, but came in slightly above the midpoint of our guidance range. The year-over-year and sequential decline in revenue reflects a reduction in smartphone volumes. The year-over-year decline was also due in part to the launch of a lower-priced smartphone in Q4 fiscal '22, which did not reoccur in Q4 fiscal '23 as well as lower sales of our general market products. Turning to gross margin. Non-GAAP gross profit for fiscal '23 was $958.2 million and non-GAAP gross margin was 50.5%. Gross margin decreased year-over-year due to an increase in supply chain costs, partially offset by higher ASPs. Non-GAAP gross profit in the quarter was $186.7 million, and non-GAAP gross margin was 50.1%. On a sequential basis, gross margin was roughly flat. On a year-over-year basis, gross margin decreased as Q4 fiscal '22 included the benefit of selling through lower cost inventory built prior to price increases taking effect as well as higher ASPs. Non-GAAP operating expenses for the full fiscal year were $486.4 million, up 7% year-on-year, and non-GAAP operating income for fiscal '23 was $471.8 million or 24.9% of revenue. For the quarter, non-GAAP operating expenses were $119.8 million,…

Thank you, Venk. We will now start the Q&A portion of the call. [Operator Instructions]. Operator, we are now ready to take questions.

[Operator Instructions]. Your first question comes from the line of Matt Ramsey with TD Cohen.

The first question that I wanted to ask is around the agreement that you guys have with GlobalFoundries that you guys put in place for supply. And the question I've been getting is there were some things that you guys disclosed tonight around Lion Semi in China and maybe some of the challenges that have been there in the China smartphone market, and you discussed in the shareholder letter and John, in your comments, the content increase at your largest customer for this year that may not happen now. I'm just wondering if there are variabilities in your revenue levels with items like that, that come and go, that's normal business, things happen, I get it. But questions really what happens to the commitments that you have? And you talk us through, are there any ramifications for margins in the medium term? Or do you feel like you've got enough room there that, that won't really affect the P&L and other products can ramp and make up for that? I just want to -- some of the terms there haven't been public, so I'm just trying to understand the sensitivities around revenue growth and that agreement.

Yes. Thank you, Matt, for that question. I'll just say upfront, there are pieces of this, which are work in progress right now. But what I would say regarding our relationship and agreement with GlobalFoundries is that we have pretty broad number of products using the same underlying process technology at Global, including amp, haptics and power all of which are very long-lived products. And we have products shipping from that process to multiple customers. And many of those products, we anticipate shipping for a fair amount of time. So that gives us some level of flexibility with how we prioritize wafers, meet our ongoing purchase commitments and manage through the change of plan. Near term, obviously, we're working -- we're going to be working very closely with our customer and foundries to balance those commitments with the slightly changed pattern of demand, but that's broadly the picture.

Got it. I understand there's a fluid situation and sensitivities there. I guess as my follow-up question, and I realize this is sensitive, but one of the things that the company, I think, has done well is talk about the investments that you're making in new programs, specifically ones that are custom for any particular customer that you wouldn't make those investments until there was very high predictability and line of sight to those products being adopted. And I don't I would anticipate none of that has changed. This is a onetime type of situation. I just wonder on the back end of that, what kind of -- what are the ramifications here and compensations maybe from the customer to a change in plans this late in the program? Are there anything, especially considering this is likely a relatively custom product, are there any things on the other side that help compensate the company for the investments that you guys have made? And if you could just talk about the philosophy there broadly, that would be helpful.

Yes, sure. Thank you. Yes, I'm going to just step around the specifics of kind of live topics with the customer for obvious reasons. But I want to pick up your point there on the confidence we have generally had and communicated regarding investing in opportunities, especially around custom silicon with our largest customer. In fact, we -- when we step back from it, there's really an amazing track record of innovation and execution there over the past 1.5 decades, going from codecs to boosted amplifiers to haptics to camera controllers and then more recently, power conversion and control. That's been within the context of a really, really strong relationship. And this -- within that, this situation is really an anomaly. It really hasn't happened before. And I think the way we regard it, certainly, the way I look at it is it's a temporary setback, but it doesn't change our plan or strategy or confidence in that relationship and and our desire to grab the opportunities that we see there for potential further growth.

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

Yes, I had a question about HPMS and especially in relation to the write-down of Lion. And I think as you -- in your prepared remarks, I think you said you would like to use some of that technology in other applications. So I'm just trying to understand if there's still a lot of opportunities for power in smartphone, or is there a shift now in the focus more on the notebook side for that type of devices?

Thank you, Tore. Leaning much more towards the latter. I think the smartphone opportunities around power, I think the larger opportunities for us there in the custom silicon space. We have obviously some Lion technology shipping today into Android smartphones I think we've seen both with the softness of the market there and the rise and possible preference for domestic Chinese suppliers in that space. That's a fairly tough place to be. By comparison, we've seen some pretty exciting opportunities around charging and power conversion in the laptop space for the future and some possible other markets in due course as well. So definitely tilting much more towards those other markets. .

And Tore, I'll just add to what John said. In terms of the HPMS technologies that we have for our key customers, that has been primarily homegrown technology. And the IP that we had from Lion has been primarily focused on the China smartphone market, which, as you all know, has been in a pretty tough spot over the last several quarters. So the underlying technology and architecture is still pretty relevant. I mean we're focusing the Lion IP more towards the laptop opportunity, but the the entirety of the HPMS products that we've built for our top customer and others has been based on homegrown IP and homegrown technology.

Very good. And as my follow-up, I just wanted to sort of understand the content opportunities you still have for the second half in spite of the setback that you mentioned. So you did mention a new camera controller. So I'm just wondering if that's primarily the content increases that we should be expecting for the second half of this year.

In the smartphone space, yes, yes, Tore, that's -- that is the kind of highlight from the content perspective in the second half of this year. And then obviously, we're pursuing content opportunities in both the Android space and other markets as well.

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

I just want to ask some of the general seasonality for June. I think this is one of the steeper declines you've seen in particularly after how much March was down because can you just speak to that? Is that -- is there any aspect of that, that's customer inventory that needs to be worked down? Or kind of -- I know it's tough to talk about your largest customer, but why the sharper seasonal decline in June?

Yes, Blayne, this is Venk. Let me respond to that. So if you look at the guidance that we provided for the June quarter, I think the 2 major elements that contribute to that. One is there is a reduction in the smartphone volumes, but I would say there's also a significant contribution from the general market. So as you know, we have a fairly decent exposure to the general market, and that is highly correlated to macro and that's where we see some weakness in addition to the overall weakness in smartphones. But -- both of those are factored into our guidance, and that's what's driving the number. .

I mean sorry, I mean Apple just had better iPhone numbers. So -- and obviously, it's the biggest part. So the general weakness couldn't explain it. So there a little more you can add to that thing.

Yes, Blayne, I think there's always some timing mismatches between what our customers report and obviously, how we build to the customer forecast and such. So I'd say at a high level, you could attribute it to the smartphone volumes being down relative to prior years, and then there's a contribution from general market that's also not insignificant.

Your next question comes from the line of Christopher Rolland with Susquehanna.

So Qualcomm last night was out. And they said essentially that more of their flagship purchases by OEMs were pulled into March and that it would leave more of a gap for June and September. And I wanted to know if that was consistent with something that -- a pattern at least that you guys are seeing and how we should think about kind of sequentials for you guys moving forward?

Yes, Chris, this is Venk. Thanks for the question. So yes, we did see the Qualcomm report from yesterday. And in general, again, every company has a different dynamic based on the specific parts of the ship and the lead times and such. So I wouldn't make a general comment, especially about our top customer based on a competitor's announcement. But suffice it to say that as we see it, we are clearly modeling a reduction in smartphone volumes overall. And then in response to Blayne's question, there's also the general market sales that's having an impact. So couldn't call specifically the dynamics for one of our competitors and how that relates to their outlook for the year and for the quarter.

Sure. I guess a follow-up and then another quick question. I guess, -- my follow-up is, could you see some of this weakness in June also leak into September? And then for my question, around your non-lead customer revenue, your general market revenue as you were discussing. I think it was an all-time low or at least in certain years, it's all-time low. Can you walk us through the puts and takes? Do we get a nice bounce off the bottom? Do you expect this to be at the bottom or is there -- is June going to be a significant step down or a little step down or even a step up in general market revenue for you guys?

Yes. So two parts. First, from the standpoint of the guidance beyond the June quarter, obviously, we're not providing that right now. But I would add that, in general, the -- if you look at the past year's patterns, there is the second half build of our customers' products. And as we see things today, we don't see anything differently. So that's one. And then as it relates to the general market, we have seen some stabilization in the general market. Obviously, as we pointed out, general market has been weak, not just for us, but certainly, the company is in the semi space over the last couple of weeks that have reported have all cited inventory and builds and so forth. For us, we do see some stabilization in the general market sales and -- but we're not ready to call a bottom. We do expect things will improve over the rest of the year, but it's hard to call the timing of when that inflection point happens.

Your next question comes from the line of Ananda Baruah with Loop Capital.

I guess, yes, two, if I could. Guys, going back to the prepared remarks, you were talking about controller content, sort of in the past increasing sort of on an annual basis. Can you just unpack a little bit what it is that allows the controller content to increase? Or what has been allowing it to increase on an annual basis? Is it purely the innovation that you guys are doing? Is it innovation you're doing that's connected to other innovation that's happening on the product? Any context there would be helpful. And then I just have a quick follow-up.

Absolutely. I think the way to think about that is as of the being 3 primary drivers there of the growth in value. Number one is that the camera controllers increase -- we've seen an increase in attach rate over time just due to multiple cameras and so on. Secondly, as those richer camera systems with more cameras, more stabilization and so on work their way down through the tiers, we've then seen multiple generations of devices shipping at the same time with more of our camera controller content. And then thirdly, to your point, we are driving innovation ourselves with the camera controllers. So they've been updated to increase the processing speed, increase the overall capabilities in relation to stabilization and autofocus and enable new features within the camera system. So there's really 3 drivers there. All of them play a part in seeing that step up in value that I mentioned in the opening remarks.

That's super helpful context. I appreciate that. And I guess just a quick follow-up, Venk. I understand you're not going to give guidance past the June quarter. But what are the -- on the gross margin, what are the forces that we should keep an eye out for that could sort of influence the gross margin one way or another as we move through the year? And that's it for me.

Yes. Thanks, Ananda. I'd say at a high level, as you've seen us over the last several quarters, we've been kind of in the 49% to 51% range. It's been more towards the high end. And as we see things right now, there's nothing that will cause us to change that range. So again, not providing guidance beyond the June quarter, but our plan is to be in the 49 -- our models to be in the 49% to 51% range so that we can optimize between revenue growth and profitability.

Your next question is a follow-up from Blayne Curtis of Barclays.

I just wanted to ask a follow-up on Matt's question. I think the new product, given cycle times, you probably started it. So I'm just kind of curious how to think about, is there going to be a product that's going to live on the balance sheet? And I know it's fluid and so you can figure out if there is a future product it goes into. But I mean how do you think about that dynamic? Because I would assume you started wafers before you figured out it wasn't going to be in the phone.

Yes, Blayne, this is Venk. You're absolutely right. So we had started building wafers based on lead times and production ramp schedules. But we are in discussions with our customer for disposition of this, and we'll provide an update when we can. But you're right. At a high level, though, I think one thing that's really important to point out is if you look at inventory overall, our inventory position has been substantially below normal levels, right? So -- as we indicated in the prior call, we've been increasing it. And we do expect that to trend higher because we do have to build products ahead of our customers' product ramps. But another point to keep in mind is that with the exception of this product that we talked about not being as a model going forward, our existing and current silicon products do tend to ship for multiple generations of our key customers end products, and that's something that is kind of different from a traditional model. So overall, as it relates to this product that's no longer going to be shipped, we are in discussions with our customer in terms of how to disposition.

And with that, we will end the Q&A session. I will now turn the call back to John for his final remarks.

Thank you, Chelsea. In summary, we're pleased with our progress in FY '23 as we executed across our 3 areas of strategic focus: first, maintaining our leadership position in smartphone audio; second, increasing high-performance mixed signal content in smartphones; and thirdly, leveraging our strength in audio and high-performance mixed signal to expand into additional applications and markets with new and existing components. We remain very excited about the opportunities that we see in front of us, and we thank you all for your continued interest in Cirrus Logic. Before we close, I'd also like to note that we will be participating in the Cowen Conference in New York on May 31 and the Stifel Conference in Boston on June 6. Please check our investor website for the details. I'd like to thank everyone for participating today. Goodbye.

This concludes today's conference call. You may now disconnect your lines.