Good morning. My name is Alicia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Silicon Labs Earnings Conference Call. [Operator Instructions] Thank you. I would now like to turn today's call over to Ms. Shannon Pleasant.

Thank you. Good morning. This is Shannon Pleasant, the Vice President of Corporate Communications for Silicon Labs. Thank you for joining us today to discuss the company's financial results. This call is being webcasted and will be archived for 2 weeks. The financial press release, reconciliation of GAAP to non-GAAP financial measures and other financial measurement tables are now available on the Investor page of our website at www.silabs.com. I'm joined today by Tyson Tuttle, President and Chief Executive Officer; and Bill Bock, Chief Financial Officer. We will discuss our financial results and review our business activities for the quarter. We will have a question-and-answer session following our prepared remarks. Our comments today will include forward-looking statements or projections that involve substantial risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call. This information will likely change over time. By discussing our current perception of our market and the future performance of Silicon Labs and our products with you today, we are not undertaking an obligation to provide updates in the future. There are a variety of factors that we may not be able to accurately predict or control that could have a material adverse effect on our business, operating results and financial condition. We encourage you to review our SEC filings that identify important factors that could cause actual results to differ materially from those contained in any forward-looking statement. Also, the non-GAAP financial measurements, which are discussed today, are not intended to replace the presentation of Silicon Lab's GAAP financial results. We are providing this information because it may enable investors to perform meaningful comparisons of operating results and more clearly highlight the results of core ongoing operations. I would now like to turn the call over to Silicon Labs' Chief Executive Officer, Tyson Tuttle.

Good morning. I'm pleased to report another great quarter with revenue up 16% year-over-year. Excluding our touch controllers, every one of our product lines was up compared to this time last year. I'll talk more about the trends for the quarter after Bill reviews the financial results. Bill?

Thank you, Tyson. First quarter revenue of $145.4 million was at the high end of our guidance range. This reflects a decline of 4.6% sequentially, which is less than we would normally expect seasonally. Broadcast led the way with record performance in the quarter. On a GAAP basis, first quarter gross margin was 60.1%, R&D investment increased, as expected, to $37.6 million and SG&A expense declined to $29.2 million, resulting in GAAP operating income of 14.2% or $20.6 million. GAAP earnings increased to $0.46, well ahead of our guidance and included charges related to executive separation agreements and $6.3 million in stock compensation expense. Turning to our non-GAAP results. Gross margin declined as forecasted. This was mix related as Broadcast revenue represented a greater share of the revenues than last quarter. At 60.3% for the full quarter, this fiscal's margin represented our expected low for the year, and we anticipate a full 100-basis-point improvement for the second quarter. We were able to incrementally drive operating leverage through expense controls. Despite first quarter seasonal upticks in overhead on FICA taxes and our annual payroll raise cycles, operating expenses increased only fractionally to $60.6 million. Both R&D and SG&A remained relatively flat, a significant accomplishment. We plan to manage operating expenses carefully while making the required investments to support our growth. We expect operating expenses will increase by about $1 million in Q2 with growth in R&D partially offset by declines in SG&A. The combination of higher revenue and favorable operating expenses resulted in better-than-anticipated operating income of 18.6% in Q1. Other expense was about $600,000. Net income, therefore, increased to 17.5% of revenue or $25.4 million. The tax rate was materially lower than typical at 4%, reflecting the 2012 catch-up from the renewal of the U.S. R&D tax credit. The tax…

Thanks, Bill. At a high level, we're encouraged by the strength of the business. We're maintaining a tremendous drumbeat of design wins with lifetime revenue potential up over 50% compared to Q1 of last year. Where demand weakness in the market has persisted, we've been able to secure new business and expand our served markets. In the product areas where we're dealing with some headwinds, in touch, in handsets and tuners and in modems, we're offsetting these declining businesses with exciting new products. Let's start with Broadcast, which was 35% of revenue in Q1. Revenue was up 7% sequentially and more than 20% year-over-year. The video business performed well through the 2013 model year transition in our customers and was up 8% sequentially. Video is on track to be a strong growth driver in 2013. We're expanding our market share to greater than 1/3 of the total TV market this year. We're also getting better visibility into 2014. The 2014 model year design wins are already going very well. Total wins were up by nearly double compared to Q1 of last year. Good traction at new customers in Europe and China are certainly contributing to the market share expansion we're anticipating next year. But Broadcast growth is about more than video alone. If you look at our Broadcast business over a 5-year period, we believe it can grow 10% or greater on a compounded basis, and that growth is not resting on the shoulders of any one product area. Let's start with our audio products. We've been weathering the decline of our FM tuner business and handsets. That product revenue will go from 5% of total revenue last year to 2% to 3% of revenue in Q2. The remaining majority of the audio product revenue will be driving a compelling…

Thank you, Tyson. We will now open the call for the question-and-answer session. [Operator Instructions] Operator, please review the question-and-answer instructions for our call participants.

[Operator Instructions] Your first question comes from the line of Craig Ellis with B. Riley.

Bill, just following up on the gross margin commentary for the second quarter, up 100 basis points. Can you provide some color on what's driving the change? And is that a single quarter dynamic or the underlying driver or something that carries over into the back half of the year?

Thanks, Craig. The margin improvement is really mix driven. As in Q2, Broad-based business will again accelerate and take a larger share of the quarter than it did in Q1, and that trend is solid for the remainder of the year. I think we'll see this improvement in gross margin sustained in the second half.

And then, Tyson, a product question for you. The microcontroller business was obviously impacted by a business wind-down we've expected for some time. Last year, you announced the 32-bit MCU product group. Can you give us an update on how that's tracking and how you expect that to contribute to growth this year and beyond?

Right. The 32-bit story, we're shipping our wireless products, which include 32-bit processors, and we announced our first 3 product families last year in 32-bit. And so we're having a lot of design win activity and a lot of customer activity around all of those products. The contribution this year is going to be modest relative to the overall size of the MCU business. This -- these Broad-based businesses take some time to build. And so the contribution this year will be modest outside of the wireless, although the wireless is showing nice traction and growth into the second half. But it's really more of a '14 and '15 story on the 32-bit as we line up the wins and those ramp into revenue. It just takes time.

And just as a follow-up on the wireless comment, as you look at the integration of Ember and the progress that you're getting with that product in the marketplace, how do you think about the performance of that business as you go through 2013?

Yes, we're very excited about the wireless business in general. It's one of our strongest growers coming in 2013, and the addition of the Ember team and the integration of that with our existing products is going, I would say, better than planned. In terms of driving business going forward, the expansion of the Internet of Things and just all the different applications that go around that, from the business that we have on the cable side, driving home automation and security, the energy metering, a lot of the different home automation, both the standardization activity that's going on there as well as the variety of applications, it's really an exciting area for us. Both from an integration standpoint, from a business standpoint and just the future growth standpoint, I couldn't be more excited about that acquisition and our prospects going forward.

Your next question comes from the line of Srini Pajjuri of CLSA Securities.

I guess first on the video side, it looks like, compared to last quarter, your tone is a bit more bullish about it. I mean, is this driven by more design wins on the second tier front? And also, if you could update us in terms of market share, where you are and what your target is exiting this year.

Right. I mean, we've had -- we had a great 2012, and going into 2013, first quarter was up 8%. Looking at another up quarter in Q2 on video. We've talked before about expanding our share. We were about 1/3 of the market last year, and we're going to be expanding our share, our unit volume and our revenue this year relative to last. A good indication of that is that our total wins are up to 2x year-on-year, and that's really reflecting the share growth that we're anticipating in China and in Europe going into '14. And really, that growth this year is driven by our expansion from the Tier 1 down into the Tier 2 and Tier 3 makers in China and Taiwan. So again, the video business has performed very well. I feel very good about where we are in '13 going into the second half. And going into '14, the design win traction and just everything is looking very positive for us at this point.

And maybe if you can give us a little bit of an idea how the competitive landscape is changing within video? And also, if you could talk a little bit about the pricing and what you're seeing in the market in terms of pricing dynamics, that would be great.

I -- we've optimized our portfolio, both with the Tier 1 makers with some custom devices and in the Tier 2 and Tier 3 with lower-end devices. So we have cost-optimized solutions. I would say that the pricing environment is fairly consistent with what we've seen in past years in terms of year-on-year decline going from '12 to '13 to '14. So we actually feel good about the pricing and competitive environment. You've got companies like NXP, who have been in China for a long time, that are in BiCMOS more than analog approach, and our digital architecture has some fundamental advantages in terms of cost and performance that's really helping to drive all the makers over to our digital CMOS solution rather than the analog solution. So we feel, from a competitive standpoint, that we're very well positioned, and I think that's going to reflect in our market share and design win momentum as we move through the year.

Great. And then last question, Tyson, on the Timing front. And now, you certainly sound a bit more optimistic about the second the half based on communications. Could you give us an idea what percent of the Timing business goes into communications? And what signs are you seeing out there that give you that sort of confidence?

Yes, the majority of the revenue remains on the communications side. It's not -- call it like 3 quarters, something like that. And we've been expanding our portfolio at the high end and have been getting a lot of design wins in the communications market. So it's a little bit hard to separate end market recovery from just share expansion versus the incumbent competitors there and just the broadening of our portfolio. But that being said, I'm quite positive on the second half. There does seem to be some signs that there's some improvement in the end market, and we're layering on top of that the expansion into the embedded and consumer areas that we've been working on for some time. So overall, Timing is one of our high-investment areas and one that we think has a lot of growth going into the back half and into '14.

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

Just a couple of questions. On the consumer audio, that business seems like it's come back. Obviously, the handset, FM hung around, and it's been known to go away. But can you talk about whether you see, outside of handsets, whether you see consumer audio growing this year and just if you can outline some of the drivers there?

Right. So we were up 5% quarter-on-quarter going into Q2. We've got the FM tuner and handsets. The GALAXY S III model and going into S4, they've removed FM. And so that's coming out. That's pretty -- that transition is probably a little ahead of where we thought. But we were up 11% year-on-year. We think that audio is going to grow this year over last despite this headwind in terms of FM handsets and that really reflects growth in automotive, which is one of our long-term strategic businesses. On the consumer side, we continue to garner a healthy share of design wins and expand that portfolio. We just announced the wheel-tuned radio going after that analog radio market. And then the digital radio market, which is already contributing to radio -- to revenue, is also going to be a part of that growth story in 2013 and going into 2014. So I think audio has turned the corner. We've -- we had a lot of business on the handset side, and I think we very successfully have grown the consumer and are growing the automotive business to keep it moving in the right direction.

And then, Tyson, last quarter, you talked about Access being down 10% for the year. It came in actually up a little year-over-year. Does that outlook still hold true for the year?

Yes, it does. The Access last year was down about 4%, and I think year-on-year, the decline in modems, although in Q2 was a little faster than we had expected, I still think the less than 10% is the proper thing to assume.

Your next question comes from the line of Terence Whalen of Citigroup.

This question is for Tyson. Tyson, it's your 1-year anniversary as CEO. I was wondering, how do you think you've executed against your initiatives that you set out a year ago? And how the initiatives change going forward into next year?

All right. Well, thank you, Terence. The goal, when I took the job, was to set the company on a path towards high-quality growth. And I think that the exit from the touch controller, while somewhat painful here in Q2 as we see that revenue wind down, and the redirection of the company and the emphasis on our Broad-based business, on our microcontrollers, Timing, our power products and then the future integration of those devices together, going after the trends that we mentioned in the call, I think that, that is playing out well. We're seeing increasing traction with our road map and with the design wins in those areas. I think that is the growth driver for the company going forward. And I'm very pleased with the progress that we've made, both internally in our R&D efforts and in the market strategically and tactically. So I think overall after the year, it's -- I'd probably still give myself a B, but there's a lot of work going forward. But I think we've made some good progress over the last year.

Very helpful, Tyson. As my follow-up, I think the main concern with the business mix is the video tuner business for many investors. What is Silicon Labs doing today to ensure that -- once market share peaks and once Silicon's share of the TV market peaks, what are you doing today to ensure that the curve after that peak is in a down 15% pricing curve? Are you able to diversify that product into other areas? Just share your thinking on that, please.

Right. I mean, I think we still have a little bit of time before we get to that 100% mark we had talked this year about silicon tuner penetration being 2/3 or greater. So I think that story will continue to play out this year and next year in terms of silicon tuner penetration. And today, I still believe that our primary competitors are the CANs, and I think that, that has been what has been fundamentally driving the pricing curves, and now we're running into some of the silicon tuner vendors as well. But I think that, actually, the pricing curve will slow down a little bit once that penetration hits 100%. I also think that it's very important to have a mature proven solution that works in every city and country around the world and every standard. And given our market share to Tier 1 and our penetration in the market, that will certainly be a competitive barrier to entry. I think that you also have to put our intellectual property in there. I think that a lot of our businesses that have been sustainable over a long period of time had a strong intellectual property component, and I think that's an important piece of the sustainability. And then just in terms of we've been very aggressive about driving the road map in terms of our own costs and are optimizing the functions specific to what each segment of that TV market needs, and that process continues. And I think that we've got some TAM expansion somewhat outside of the TV market that is possible that makes this an important brick in the business going forward and one which I think we will be able to sustain over the long term.

Your next question comes from the line of Ian Ing of Lazard Capital.

Talked about MCUs and wireless being a pretty powerful combination currently in smart metering applications, coming up in things like Internet of Things and machine-to-machine applications. How do you think the latter 2 applications play out in the coming quarters and years? Could they cross smart metering at some point?

Yes, I think that if you look at the projections for the Internet of Things and all the machine-to-machine communications, the unit volumes will exceed handsets in the second half of this decade. And I think that the combination of MCUs, wireless, power and sensors and the integration of those in the cost-effective CMOS solutions is going to be the key to dominating that space. And I think that Silicon Labs is very well positioned with those silicon platforms as well as the software platforms to be able to do that. So it's one of the most exciting areas of investment for us, both from an R&D perspective and from a market perspective, and I think that the growth in those areas is going to be one of the key bricks in our foundation as well going forward as we march towards $1 billion.

Okay. And my follow-up is, could you add more color on the softness in the industrial markets and the inventory mismatch? Is it related to demand or inventory de-stocking or particular programs rolling off?

So Ian, we simply were caught by surprise with a customer that reduced demand on a selected part number. So we had built inventory in anticipation of that requirement, and it evaporated on us. It's a continuing shipping product, so we will burn that inventory off. But as I said in the prepared remarks, I think it's going to take a couple of quarters to accomplish that.

Your next question comes from the line of Anil Doradla of William Blair. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Couple of questions. The 50% decline in some of those legacy businesses, touch, FM tuners, modem, was that part of a concerted strategy? Or was that a natural evolution?

That was a natural evolution of just the product cycles that those were in. The touch was in the Galaxy Y handset platform at Samsung, and so that is winding down, again, a little faster than we had anticipated but in line in terms of where we thought the year would end. The FM tuners and handsets, again, was another Samsung set of handsets, the Galaxy S III, and then they're moving to the S4, I think, fairly rapidly. And then on the set-top box side, a number of our high-volume set-top box customers are moving from higher-speed modems to lower-speed modems. And in a few of the models, they've de-bundled the modem altogether for some of the emerging market applications. So those all just really hit us at the same time in one quarter. I thought it was going to be spread out a little bit more through the year, but that's the way it ended up. So it's about $10 million in one quarter that we're taking a hit.

And Anil, part of this is just simply that the new handset from Samsung is enjoying rapid acceptance in the market, and they're making their own conversion to their next-generation product more rapidly than I think they had even planned on 6 months ago. Anil K. Doradla - William Blair & Company L.L.C., Research Division: Okay, great. And as a follow-up, Tyson, when you look at the communications segment with respect to your Timing, can one make a case in favor of your Timing products on the higher-end products of infrastructure? In other words, with 4G deployments being more small cell oriented, is there less content or no content for your Timing product line?

Well, today, most of our Timing products are in the core network, not as much as on the wireless side. But the deployment of wireless drives a lot of core network upgrade with the smartphone and LTE, this higher bandwidth with applications. That being said -- so in the base stations themselves, you have a core network connection, and you have the wireless connection. And we see opportunities increasing in both areas, actually. So yes, sure, you have additional deployments on the small cell side, but I don't believe that, that in any way diminishes the Timing opportunity that we're looking at.

Your next question comes from the line of Vernon Essi of Needham & Company. Vernon P. Essi - Needham & Company, LLC, Research Division: Just one sort of macro question. Everything has been kind of covered here. But I was wondering if you could give us some insight on sort of the MCU market and how things have been shaping up into 2013. And I guess what I'm trying to understand is what demands you're seeing between sort of newer products that you've introduced more recently versus, say, the older legacy products as perhaps a read into some of your competitors as well.

Okay. Now as you know, the microcontroller business is highly diverse and is spread across, really, in our case, industrial communications and consumer fairly evenly. And I would say that on the 32-bit side, the opportunities are similar. We have a low-power line, we have connectivity line, a general purpose line and then a wireless line. I would say that there's a lot of activity in low power and in wireless. I think there's a strong synergy between those, and a lot of the applications are running off of batteries. And a lot of the Internet of Things, the smaller-type applications, tend to be very power sensitive. So that's been an important driver on the 32-bit side, and then the synergy between wireless and microcontrollers and a lot of bundling going on there. But I think, just in general, in the Broad-based piece, I would expect that the 32-bit is very similar to our 8-bit in terms of the diversity. Vernon P. Essi - Needham & Company, LLC, Research Division: Have you seen any -- I guess to back up a step here, have you seen any differences or changes in demand? I mean, obviously, you're more in the leading edge with the design activity. But on some of the older legacy products that are out there, has there been any shifting, if you will, heading into 2013 versus where you might have thought it would land maybe 3 or 4 months ago?

Yes, I mean, I think that Q1 is -- the industrial was, I think, a little bit muted in Q1 compared to typical. So I -- if I had to say anything, I would probably put it in the MCU area that industrial was not as strong as it normally is. I mean, you have some typical seasonality in the -- on the consumer side. I see that coming back in Q2, though, so I'm incrementally optimistic about the health of the markets going into the second half across-the-board really. But the industrial weakness in Q1 was a little bit of an anomaly that I think was some small indication of what's going on.

Your next question comes from the line of John Vinh of Pacific Crest Securities.

Just a follow-up on the inventory question, can you clarify what product family the inventory mismatch came in?

We're not going to do that specifically because we don't want to talk about a unique customer's situation. But suffice it to say this is a shipping part and we have other demand for the product, and we will work this inventory down, as I suggested, over a 6-month period of time.

And then my follow-up for Tyson is, you talked a little bit about kind of the opportunity in FM auto longer term. I'm wondering if you could just give us a little bit more color about how you expect kind of that opportunity to ramp in the near term. It sounds like it's kind of more of a second half opportunity at this point.

Right, the automotive business is ramping sequentially nicely through the year. I think we'll be up almost 2x year-on-year in terms of the revenue in the automotive segment, although starting off of a smaller base. We introduced our first products in 2009, and so the -- again, it's another one of those businesses that takes a fair amount of time, but we're starting to see a nice number of Tier 1 wins in the U.S. and in Europe and some traction in Japan, finally. And I think if you -- there's about 100 million car radios shipped a year. Some of those have multiple tuners in them and are multi-dollar ASPs. You have an emerging trend towards digital radio, and so the announcement that we made this week in terms of our consumer offering will extend into automotive over time. And I think that, that is going to just be a very nice, solidly growing business for us over the next number of years. There's really no end in sight, I believe, in terms of the market opportunity there. It just takes some time to build.

Your next question comes on the line of Tore Svanberg of Stifel. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Yes. First question, so if we exclude the $10 million legacy business for the June quarter, can you just talk a little bit about your visibility right now, I don't know, either by bookings linearity or how you feel about your backlog?

So Tore, the remaining businesses, we're forecasting to grow at about 6% quarter-over-quarter into Q2, which we think is a relatively conservative guide but consistent with what we would like to see seasonally in a second quarter. Our bookings performance in the first month of the quarter has been pretty solid. So we have been above unity on book-to-bill, and the status of our visibility for the quarter is good and kind of consistent with historical practice. We still certainly have turns to book this quarter, so by no means is it in the bag. But as we sit here today, our position for the quarter relative to this guide looks to be as good as we normally can be. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: Very good. And my follow-up, for Tyson. Tyson, you mentioned you're now starting to get into the motor control market. Can you maybe elaborate a little bit on your entry there, please?

Yes. There's really 2 plays in the motor control market. We've got our isolation and power products. So the motor controls and certainly then in the industrial segment are ones that are plugged into the AC power lines. So our power products and the unique capability that we have there to provide isolation and replace opto couplers is an important opportunity, and so we're seeing some good design win traction there and are also driving some products on the road map to address those applications specifically. And then on the microcontroller side, both small motors and the industrial motors and the algorithms that go around that is another key opportunity for us. So we think that in terms of one of the verticals, both -- really in this Broad-based segment, that that's an important one to address, and it's a broad range of different types of applications and technologies that really highly values the mixed-signal capability that we bring to bear. Tore Svanberg - Stifel, Nicolaus & Co., Inc., Research Division: And will you eventually break that out? Or is it just going to be under either isolation or MCU?

That will be a combination of microcontrollers and power. So the -- it will be included in the Broad-based segment for sure.

Your final question comes from the line of Steven Eliscu of UBS.

First part question, just on inventories, what level do you want to get back to? You were in the low 60s the first part of last year.

It's easier to answer that question in the context of turns. We're at about a 4.1 turn ratio today. We would definitely like to see that number in the mid-5s. So we have a way to go to get to our optimal inventory level. That won't happen in Q2, but we hope to return to a model level of inventory performance before the end of the year.

Okay, that's helpful. In terms of -- if I look historically, I know that when you look at seasonal growth, it's all over the place. But 2Q growth, if I take the last 5-year average, has been more of a high single digit. If I compare that to the 6% growth that you're guiding, excluding the decline of legacy businesses, there -- it still seems to be a little short of that. You did talk about industrial being strong but communications being weak. Is there any other dynamic that perhaps is limiting the growth in -- the sequential growth in Q2?

No, I don't think so. When we look into the 2Q guide, we're attempting to be prudent and give you a number that we feel sure we can hit. There's no unique dynamic going on right now that would depress 2Q from a seasonal point of view for the core businesses.

And just one last question, more strategic question on Internet of Things. This seems to be a very hot area. Obviously, you're not the only one talking about it. With regards to more Broad-based suppliers, such as Texas Instruments or Microchip, how do you believe you can be differentiated versus them that have a much more broad product line?

Well, I think, fundamentally, our differentiation boils down to our mixed-signal design capability. I think we've had a unique ability to put these very difficult -- to solve difficult analog problems in a standard CMOS process. And applying those into Broad-based markets like microcontrollers and Timing and power, I think where TI might be selling a bundle of a bunch of analog components with a microcontroller, our strategy is to integrate a lot of that functionality into a device and have a high-value proposition. I think against a -- well, certainly, against the Microchip in the 32-bit space, they have not chose ARM, and I think that, that's going to be a drag. I think they also do not have the same level of wireless and RF capability that we have. So I think that we've got some key advantages, which really get down to the core capabilities of Silicon Labs, of our mixed-signal design capability. And I think that, that's going to be what propels us in terms of market share growth going forward.

Great. If I can sneak one quick question and hear on the motor control opportunity. What do you view as that TAM for that opportunity?

The TAM is certainly well north of $1 billion. The products that we have that are targeted at that market today are probably only addressing maybe 20% of that TAM. But I think that going forward with some additional product R&D activities, we'll be able to expand that TAM to a larger fraction going forward.

I would now like to hand the call back over to Shannon Pleasant.

Thank you. And thank you very much for joining us. This now concludes today's call.

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