Good afternoon. My name is Natalie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech Corporation Q4 FY 2012 Earnings Release Conference Call. [Operator Instructions] Ms. Linda Brewton, you may begin your conference.

Thank you, Natalie. Welcome to Semtech's Fourth Quarter and Fiscal Year 2012 Conference Call. I'm Linda Brewton, Senior Manager of Investor Relations. Speakers for today's call will be Mohan Maheswaran, Semtech's President and Chief Executive Officer; and Emeka Chukwu, our Chief Financial Officer. A press release announcing our unaudited results for the quarter ended January 29, 2012, was issued after the market closed today and is available on our website at www.semtech.com. Today's call will include forward-looking statements that include risks and uncertainties that could cause actual results to differ materially from the results anticipated in those statements. For a more detailed discussion of those risks and uncertainties, please review the Safe Harbor statement included in today's press release, as well as the other Risk Factors section of our most recent periodic reports on Forms 10-Q and 10-K filed with the Securities and Exchange Commission. As a reminder, comments made on today's call are current as of today only. Semtech undertakes no obligation to update the information on this call should facts or circumstances change. During the call, we may refer to pro forma or other financial measures that are not prepared in accordance with Generally Accepted Accounting Principles. A discussion of why the management team considers non-GAAP information useful, along with detailed reconciliations between GAAP and non-GAAP results, are included in today's press release. I would also like to mention that Semtech will be participating as a presenter in the Williams Financial Group Management Discussion Series teleconference on Wednesday, March 28, 2012. The dial-in information will be posted to the Investor Relations section of our website. With that, I will now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu.

Thank you, Linda. Good afternoon, everyone. I will provide a brief update on our recent acquisition activity and then discuss our Q4 financial performance in detail. At the end of Q4, we signed a definitive agreement to acquire Gennum Corporation, a Canadian analog semiconductor company with leadership positions in the video broadcast and direct communications markets. The proposed transaction has received preliminary approval from the Ontario Superior Court of Justice and is now pending approval by Gennum's shareholders and final approval from the Ontario Superior Court of Justice, both of which are expected to occur later this month. Upon closing of the transaction, Semtech will begin reporting on Gennum's performance as a fifth product group. Please note that our Q1 guidance does not include Gennum. We will provide more information to you after the close of the transaction. Also today, we announced that we acquired Cycleo, a French company specializing in long-range radio frequency IP. To effect the transaction, we paid Cycleo's shareholders $5 million. The shareholders will be eligible for an additional $16 million in cash upon achieving certain revenue and operating profit targets over the next 4 years. We do not expect this acquisition to have any material impact on our fiscal year 2013 earnings. Mohan will discuss the strategic rationale for this acquisition in his prepared comments today. Now turning to our quarterly financial results. Consistent with the guidance we provided in our Q3 earnings call, Semtech's revenue for the fourth quarter of fiscal year 2012 was $104 million, representing a decline of 16% from Q3 and a decline of 11% from Q4 of fiscal year 2011. In addition to the seasonal weakness that we typically experience in the fourth quarter, Q4 of fiscal year 2012 was negatively impacted by the flooding in Thailand and overall macroeconomic…

Thank you, Emeka. Good afternoon, everyone. I will discuss our Q4 fiscal year 2012 performance by end market and by product group, discuss our fiscal year 2012 performance, comment on our acquisition of Cycleo announced today and then provide our outlook for Q1 fiscal year 2013 and also provide a brief update of our pending acquisition of Gennum. In Q4 of fiscal year 2012, we achieved net revenues of $104 million, in line with our prior guidance. This was down 16% from Q3 of fiscal year 2012 and down 11% from Q4 of fiscal year 2011. For the quarter, our non-GAAP gross margin was 57.6%, and our non-GAAP diluted earnings per share was $0.32 per share. In Q4, revenue from the high-end consumer end market decreased from the prior quarter and represented 36% of total revenues. Approximately 22% of this revenue was attributable to handheld devices and approximately 14% was attributable to other consumer systems. Revenue from the communications end market declined sequentially and represented approximately 38% of total revenues. Revenue from the industrial end market declined sequentially and represented 17% of revenues, and revenue from the computing end market also declined from the prior quarter and represented 9% of revenues. Now let me discuss the performance of each of our product groups. In Q4, our Protection business declined 17% sequentially and represented 45% of Semtech revenues. The decline was driven primarily by softness in the high-end consumer market for applications such as smartphones, LCD TVs and tablets, as well as weakness in the communications space. The Protection market continues to grow due to the proliferation of high-performance interface ports on electronics devices. In addition, as advanced processes transition to next-generation lithography nodes, these devices become much more susceptible to catastrophic ESD events. As the acknowledged leader in high-performance protection…

[Operator Instructions] Your first question comes from the line of Terence Whalen with Citi.

This is Bin speaking for Terence. My first question is regarding to the order trend. Can you please comment, with book-to-bill approximate 1, can you give us some linearity about the order trend starting from the quarter entering to March?

So I think the question you asked was about order and linearity. Bookings have been improving. I think once we -- last quarter, the bookings were pretty soft. As we mentioned, we had a book-to-bill of about 1 as we exited the quarter. And coming into this quarter, I think the bookings have started to improve. Across the different end markets, I would say that what we've seen is obviously, last quarter, all the end markets were down significantly. So bookings were soft in all of the markets. But communications has come back quite strong from a booking standpoint. That's probably the strongest area. But linearity is fairly consistent, I would say.

All right. And my follow-up, for the next quarter guidance, I remember in the last quarter earnings call you mentioned probably we can grow seasonally for April. But now with the flattish guidance, what makes you change your view? And in addition, what happened to the negative revenue impact from Thailand flooding? Do we continue to see the impact from both demand side and supply side?

So yes, if we go back to Q4, what we said -- Q3, what we said for Q4 was that there's going to be about $2 million of supply side impact in Q4. That's about what we saw. We're also expecting that same number in Q1 as we don't see any recovery on that side for at least another quarter. On the demand side, we said it was about $5 million of impact: $3 million I think optical; $2 million consumer, something like that. And I think we're going to see similar in Q1. The demand has not picked up yet. I think probably it will be Q2 before we start to see that recovery. And then again on your other question on what's happening with demand in general, it's across-the-board weakness. Industrial was down 17%, consumer was down 17%sequentially, communications was down 14%, computing was down 16%. So I don't think it's -- you can point to one area of weakness. I think it's just general weakness. Having said that, the fact that we're guiding to a flat to modestly up midpoint, I think, suggests that we believe that things are improving.

Your next question comes from the line of Craig Ellis with Caris & Company.

First as a follow-up, Mohan, you mentioned that communications bookings were coming back strongly. Can you provide more color on where you see that happening, either from a product standpoint or a customer, geographic standpoint?

Yes. The comm businesses is the one area where bookings was a little bit stronger, and we continued to have very good design wins on the 40-gig, 100-gig side. Obviously, particularly in Asia, we feel very good about some of the opportunity there based on what we're hearing about our customers winning in certain service providers. But I would also say the timing synchronization area is also -- seems to be coming back a little bit. I would say it's just generally across-the-board. I don't think there's -- comm has come down now -- has been coming down for the last couple of quarters. And so to start to see it increase, I think, is promising.

Okay. That's helpful. And then as a follow-up to the comment on Gennum where you said you think you are seeing potential for greater than initially expected revenue synergies, can you quantify how much that might be or where you think those are occurring?

Well initially, we had not planned on any revenue synergies, and now we think that there is -- there are at least several million dollars of revenue synergies, probably more. But as we dig deeper into the different markets and the customers and the product areas, we're finding that there definitely are areas where we can bolt on some Power Management and Protection devices onto their platforms and generate additional revenue. And I think also on the data comm side, where Semtech has not traditionally played, there are going to be opportunities to add some Power Management Protection products to some of the optical components and line cards and modules, et cetera.

Your next question comes from the line of Steve Smigie with Raymond James.

Given the fact that you're seeing the pickup in the communications orders and that it seems like maybe in the July quarter you should be getting back some of the Thailand revenue, would it be fair to say that we should expect a pretty decent up sequential quarter in July?

That is the hope, Steve.

Okay. And then with regard to R&D as a percentage of revenue, how should we be thinking about that throughout the year? Is that going to be a similar level to what you sort of indicated here for the April quarter, or would it sort of work its way down? And I guess a little bit it seems like the April R&D dollars as a percentage of revenue is a little bit higher. And I was thinking would that work its way down? Is there anything special about this quarter?

So Steve, Emeka here. As a percentage of revenue, you would typically expect that you would see some leverage as we start to get the return in top line growth. The only caution there would be that a lot of this, especially on the R&D side, a lot of that also depends on the timing of the take offs, the timing of the new product expenses. So just a general response to your question is yes, I would expect that to be flattish to slightly down as we start to get top line growth again. But there could be some periods where, as a percentage of revenue, it goes up slightly just based on the volume of take offs and stuff like that.

Okay. If I could sneak one more in. With regard to the acquisition you announced today, I think you said it's no impact to EPS or revenue this year. I mean, does that mean that there's no revenue really at the company? I guess I'm just trying to understand why there wouldn't at least be some operating expense impact that comes online even if it's a lower revenue company.

Yes, so Steve, Cycleo has a little bit of revenue that they generate from their IP that we expect would just offset the incremental operating expenses.

Your next question comes from the line of Harsh Kumar with Morgan Keegan.

A couple of questions. Correct me if I'm wrong, did I hear that distribution inventory went up by 12 days? And if that was the case, I think it's a little bit of a different trend than what we're seeing in other companies. Maybe, Mohan, you could explain to us why that happened. And then also, what area are you seeing the days of inventory go up in?

Well days went up. It was mostly driven, though, by lower POS. So specifically consumer and I think some comm areas where there the end market, the distributors just weren't shipping as much revenue from their end. And so, yes, the days went up. I don't think -- I think as we're going into the Q2, Q3 period here where one would expect demand to start improving, especially if the macro comes back, I don't think it's anything to be too concerned about.

Okay. Great. And then orders just generally stepping away. I know you had talked about communication orders, Mohan. But what other areas are you seeing a little bit of positive activity in if you were to go to your markets?

I think the consumer is coming back a little bit. I would say the one that's most concerning is industrial is very, very soft, and industrial covers mil, aerospace, medical, general industrial kind of applications and it's pretty -- pretty weak across-the-board. So I would say computing is also okay. It's not falling off a cliff or anything like that. So I would say comm and computing are doing okay, and consumer is bouncing back a little bit. Industrial seems to be very weak.

Fair enough. And then I saw that -- I think in your commentary, Mohan, you said the Wireless/Sensing was down, I believe, 29% sequentially. Was there any particular territory, geography or product that just absolutely accounted for much of that?

No. It was pretty much across-the-board. We have medical customers that weren't doing so well. There were some industrial wireless customers that really didn't pick up so well. Some of the impact of the Thailand flood, the supply side, actually impacts this business more so than any other business, so there was some of that there. But no, I would say in general, Harsh, it's just across-the-board weakness.

Your next question comes from the line of Rick Schafer with Oppenheimer Fund.

This is Jason Rechel calling in for Rick. I guess just first, to circle back to today's acquisition, I think you guys talked about some of the IP just doubling your opportunity in wireless and sensing over the next few years. Could you maybe just provide a little bit more color on that and perhaps quantify the growth in your opportunity that you expect to see?

Yes. So essentially, what Cycleo has is they have patented IP that enables a long range of wireless communication at very low power. So our wireless platform is basically a sub-1 gigahertz, ultra-low power wireless platform. And with this IP, we just get more range. And with more range, it opens up a lot of opportunities for our customers to do things like, for example, as I mentioned in the script there, that they can remove the need for repeaters, which are expensive infrastructure components. So it's a great fit for us. We've been targeting the metering market and asset management markets and markets that needs that kind of technology. And so we believe with their IP platform, we can basically open up the market a little bit more. Probably opens up to about a $50 million to $100 million sand for us now which we didn't think we had before. So I think the integration is going to be straightforward, and it really makes Semtech the undisputed leader in long-range, ultra-low power RF platforms for industrial applications, which is quite exciting for us.

Great. That's really helpful. And then I guess just moving to handset. Could you maybe talk about who your biggest customer in handset is now? And as RIM kind of continues to have its own difficulties, is some of that headwind starting to ease a bit?

Yes, I think the answer is yes, but I think our smartphone customers are fairly broad. We are -- obviously, we're a big supplier to Samsung, to LG, to some of the other big handheld smartphone manufacturers, obviously including RIM. And RIM has been challenging for us, but I think things are bottoming out there and I think will improve.

Okay. And then kind of going tangentially over to tablets. Can you maybe talk about how many tablets you guys are in today? And as you -- whether it's in those tablets or designs that you're targeting, could you maybe quantify maybe your average dollar content in tablets today?

We're in most of the tablets. It does vary. Like smartphones, the content varies from tablet to tablet depending on how many interfaces, the different type of architectures that those customers use. Content can be anything from $0.10 to up to $1, I think.

Your next question comes from the line of Jim Schneider with Goldman Sachs.

This is Gabriela Borges on behalf of Jim. Just to follow up on some of the earlier comp questions. Can you provide any color on your expectations for overall 40-gig market growth for the year? Also Semtech's growth within this market?

Well the growth is -- our expectation is the growth is going to be quite good in terms of number of units, number of ports. Both 40-gig and 100-gig, in our opinion, are still emerging markets. And 40-gig is now getting to the cost point where replacing 10-gig -- 4- or 5-, 10-gig line cards with a 40-gig line card makes a lot more sense. And so we're starting to see more deployment of 40-gig, and I think that trend is going to continue. And our customers tell us that their 40-gig deployments are accelerating quite nicely. So 100-gig is obviously very early days, but also we're starting to see 100-gig, certainly in the line side applications, starting to be deployed quite rapidly also. And we have a pretty good share in both the 40-gig and the 100-gig long-haul applications. Our competition is largely internal, so some of the customers actually who buy our products also have their own solutions, internal solutions. But I think we'll keep bringing new platforms to them, and hopefully they'll move some of their share over to us.

That's very helpful. And then as a follow-up if I may, you mentioned gross margin up slightly this quarter on mix. How should we think about gross margin going through the year as volumes recover but then perhaps mix shifts back towards the consumer, computing segments?

Yes. So this is Emeka. Our gross margin story's essentially very simple. It's just a function of the mix of revenues. As we see the higher mix of industrial and communications, that is good for our gross margin, and the higher mix of consumer and computing is not so good. The other key driver of our gross margin is just the manufacturing volumes. So what we've said is that at a quarterly revenue run rate of $125 million to $130 million, we should be able to operate at the high end of our 55% to 60% target.

Your next question comes from the line of Li-Wen Zhang with Pacific Crest.

First one, just to follow up on Mohan's comments on the unit growth for 40-gig. Even though you're still the sole supplier in the merchant market, but how -- what do you see the ASP pressure and the erosion for that product line?

Yes, no, the ASP pressure is there. It's really driven by the customers wanting to drive more volume. So that's clearly something that we are working with them on. We are bringing the ASPs down. There's plenty of room on the costs side as well though, so I think that we can hold the margin profile for those areas. And it's in our interest if the volumes go up significantly because of more deployments of 40-gig components where we're really the only guy out there that has qualified products in the field today that have been through all the different trials and et cetera. We feel good about that, so we don't want to lose any of our share on the 40-gig line side.

And also, given the high-margin profile Gennum will provide upon the deal close, is it fair to assume that Semtech will more aggressively play in other market like for the Protection or Power product line?

Well, I think we will continue to play aggressively to maintain our position in the consumer/computing space where we think we have differentiated product. We do that now. It's not really an issue of when we acquire Gennum. Gennum also has some good position in some consumer spaces and some of the, what I'll call kind of data comm enterprise computing spaces, where maybe they haven't been as aggressive because they're trying to maintain the higher gross margin. I think we'll take a look at those areas and determine if we can accelerate the growth.

Your next question comes from the line of Cody Acree with WFG Investments.

Mohan, you just mentioned not a lot of competition outside of the internals in 40- and 100-gig. Can you just give us an estimate right now on what that -- what your market share is versus the internal and how you see that shifting?

We think we have about 70% share. It's difficult to quantify exactly but we think we have about that much. It hasn't changed a lot actually since we acquired Sierra Monolithics. There are certain companies out there that have their own internal kind of more vertically integrated. I think it's a mistake in the long run. I think they will start to look at how they can rationalize some of their expenses there and look for off-the-shelf components. But the fact of the matter is there are some companies that have their own solutions, and it's difficult for us to penetrate them because it's more of a political or emotional decision. But all the other guys who use off-the-shelf components use our products.

But that's not been shifting noticeably in the recent quarters, is that correct?

That's correct.

Okay. And then on the comms order rates, do you think this is more Semtech design win-specific or maybe even your customer design-specific? Or is this more indicative of maybe some of the service providers starting to release some CapEx which was delayed through 2011?

I think it's a little bit of both, Cody, I think with some CapEx getting more deployed, some regions doing a little bit better. And then I think it is also Semtech specific in the sense that, for example, our 100-gig coherent design wins, nobody else has the kind of technology we have. And so I think we are quite confident as those things roll out, that we'll get a nice return.

And then the last thing for me, on those 100-gig design wins, you talked about the Tier 1s that might be impactful later this year. Can you give us some color on size and timing of those? And do you expect those to layer in, in the second half or is this really more of a '13 event?

No, we should see some this year. I don't know exactly how much, I can't quantify that now. But I think as these systems roll out, one of the things you find very quickly is that they're not just building one platform. They'll build one platform, and then they'll roll it out into many different systems. And as those systems start to get adopted in the marketplace, those same customers will come back for more applications and different usage -- uses of the devices.

And I'm sorry, actually one last thing here. On the bookings side, you said obviously things are coming in a bit stronger. Are those primarily for the current quarter delivery? Are you seeing some of those actually stretch out, specifically given that their comms orders are improving?

It's a little bit of both. Our lead times in comm are quite long, so I would caution you about that. I mean we -- some of our other lead times are very short. So where we see the extended bookings in a little bit more visibility are on the areas where we do have long lead times, which is what the comm area is. So I think in the other areas though, I would say that bookings, in general, is still relatively weak.

Your next question comes from the line of Craig Ellis with Caris & Company.

Mohan, I was hoping that you could take a step to a slightly high level. It's helpful to get your perspective on the growth you see in the near term with your product groups. But as you look out over the course of the full fiscal year, can you talk about where you've got more confidence in growth and where you might, from a product group standpoint, see either headwinds or challenges to growth in those lines of businesses?

So yes, essentially today, we have 4 product lines and Protection -- our Protection business just came off yet another record revenue year. And I still believe the trends in that business are going to enable that product line to be very, very successful. And obviously, if the markets hold up, I would expect another record year or very close to that for our Protection business. Our Advanced Communication business, as I mentioned, we have a lot of secular things going on and we are having some unique platforms, both on the 40-gig side, the 100-gig side, the timing sync side. We started to explore and get products out in the PMD side also in the 40-gig and 100-gig areas, things like drivers. We're also looking at, obviously, the microwave platforms, which should start to get designed in here over the next couple of quarters, and we should start to see some revenue maybe in the back end of the year. So I think our Advanced Comm business also is likely will have another record year for us. On the Wireless and Sensing side, longer time to revenue, little bit more challenging, but we have had very good design wins. And I think now with the addition of Cycleo, my expectations are getting greater for that business. So I think that could be a year of really trying to find and identify where we're going to get more growth from, but I think that should start to see growth. And then our Power Management and High Rel business, as you know, it's been kind of declining for the last couple of years here. We've started to come out with some more exciting products. I think we have some momentum with the new general manager, who's really made some -- making a difference, and I'm confident that, that business is going to start to do well as well.

That's helpful. And then for you, Emeka, just a derivative off that. It sounds like there's a strong growth profile and at least 1/2 of the business is more so on a revenue mix basis. What does that mean for gross margins relative to getting back up to the high end of the target model range, which is where the business was just a few quarters ago?

I think like I said before, if we continue to see the growth from Communications, and the Wireless and Sensing business beginning to really grow very nicely again, that obviously is going to be very good for gross margin. I think the one key driver that really helps us to get back to the high end of the target range is going to be seeing overall return in top line growth, hence driving much higher volumes. When we start to see that, like I said before, the quarterly revenue run rate of $125 million to $130 million, I would expect us with the right mix to be back to the high end of the 55% to 60% gross margin.

Let me also add to that, Craig. The Power Management gross margins, as we start to get growth there, I think will continue to improve and that will help us overall. I think also some of the new comm platforms like microwave platforms, I think, will drive higher gross margins also for us. We still have areas of yield improvement we can improve on in the company, and I think that will drive also improved gross margin for us. Some manufacturing efficiencies also. And then as I mentioned, some of these new PMD devices, some of the optical devices that we're looking at. I think from a product mix standpoint, we should start to see some more higher-end gross margin products come out.

Your next question comes from the line of Steve Smigie with Raymond James.

Great. First question is, you guys are talking for your products in terms of new categories now. Did you provide historical breakout for them? Sorry if I missed that somewhere.

So for the old product group, you wanted to know what the quarterly growth was?

Well, I just want to know if there's a historical...

We can provide that for you, Steve, if you want to just get with Linda after the call.

Okay. And then just I guess with regard to July of 2011, you guys hit about $130 million of revenue as your peak revenue number. How tough is it going be to get back there? And is that a fair peak, or is there exuberance in demand that led to that number being higher than it really should be?

Well that was I think the quarter, probably first half of last year, right, tsunami. So there was some pull in, I think, of inventory into the first half. But to be honest with you, I think Q3 typically is our strongest quarter. So my anticipation is that this year, we should be able to get back to that at some point.

Your next question comes from the line of Harsh Kumar with Morgan Keegan.

Just wanted to clarify something on Cycleo. Mohan, when you said you eliminate the repeaters, is the smart metering data then going on wireless infrastructure or how is it going out?

Yes, no, it's still wireless. So today, the wireless infrastructure that's being deployed is from transmitter to repeater to receiver. And all I'm saying is that the infrastructure deployments can basically remove some of those repeaters in their infrastructure because the range of wireless transmission is longer. So that is really the value proposition of having long-range, low-power wireless communication.

And do you, Mohan, expect to have products out from Cycleo, or will this be technology that's embedded into some of your own stuff?

Yes, it's technology that's embedded into our products, and we should have products out this year.

Your next question comes from the line of Li-Wen Zhang with Pacific Crest.

Can you update your microwave products?

Yes. So the microwave platform, the first silicon came out. We sampled it. Customers like it. They've asked us to go back and make some modifications to the next silicon. We've made those modifications. We expect to have the product out, I think, over the next quarter here. And then my expectation is we'll start to get some design wins.

You have no further questions at this time.

Okay. Let me summarize by saying that fiscal year 2012 was another record-breaking year for Semtech. Our annual revenues and non-GAAP operating profit, net income and earnings per share were all company records. Furthermore, the proposed acquisition of Gennum Corporation would represent the largest acquisition in Semtech's history. Both Gennum and Cycleo provide opportunities to add to our arsenal of highly differentiated, value-added technology solutions. During the year, we continued to experience solid design win traction, which indicates strong customer demand for our innovative platforms. We also returned value to shareholders in the form of stock repurchases, and during fiscal year 2012, we bought back a total of 2.3 million shares of Semtech stock. With that, I would like to thank you all for your continued support of Semtech. I look forward to updating you all next quarter. Thank you.

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