Good afternoon. My name is Jay, and I will be your conference operator today. At this time, I would like to welcome everyone to the Semtech First Quarter of Fiscal Year 2013 Earnings Release Conference Call. [Operator Instructions] Ms. Linda Brewton, Senior Manager of Investor Relations, you may begin your conference.

Thank you, Jay. Welcome to Semtech's Fiscal Year 2013 First Quarter Conference Call. I'm Linda Brewton, Senior Manager of Investor Relations, and 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 April 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 these statements. For a more detailed discussion of these risks and uncertainties, please review the Safe Harbor statement included in today's press release, as well as the Other Risk 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 like to mention that Semtech will be presenting at the Stephens Spring Investment Conference in New York City on Tuesday, June 5 at 1:30 p.m. Eastern. A link to the webcast will be available under the Events section of our Investor Relations page. With that, I will now turn the call over to Semtech's Chief Financial Officer, Emeka Chukwu.

Thank you, Linda. Good afternoon, everyone. Let me start by apologizing to all of you who are inconvenienced by our decision yesterday to reschedule our earnings call on such short notice. Unfortunately, it took us longer than anticipated to conclude on certain purchase accounting determinations related to our acquisition of Gennum Corporation. On March 20, 2012, we closed the acquisition of Gennum Corporation. Our first quarter results include Gennum's financial performance from March 28 through April 29 of 2012. Before I get into the Q1 results, I would like to advice of 4 primary differences between the Gennum and Semtech methods of accounting for certain items. First, Gennum recognize revenue upon shipment to distributors with return privileges, while Semtech recognizes revenue upon sell-through by those distributors. Second, Gennum historically recorded IP sales as revenue. Semtech typically records this type of activity as a credit to R&D expense. As a result, their gross margin going forward will be lower than those historically reported, but gross margin should still be above Semtech's corporate average. Third, some research and development expenses that Gennum historically capitalized and amortized to cost of sales will now be incurred as -- will now be expensed as incurred under Semtech, resulting in a negative impact to R&D expense but positive impact to gross margins. Fourth, Gennum recorded the Canadian equivalent of the research tax credit as a credit to R&D expense. Under U.S. GAAP, Semtech will record this as tax provision. I wanted to highlight these differences to help you better reconcile Gennum's historically reported numbers with what we will disclose here today, as well as with the pro forma financials we expect to file with the SEC by the first week of June. Now moving on to our Q1 results. Revenue for the first quarter of fiscal…

Thank you, Emeka. Good afternoon, everyone. I would discuss our Q1 fiscal year 2013 performance by end market and by product group, including a brief update on our progress integrating our 2 recent acquisitions, and then provide our outlook for Q2 fiscal year 2013. In Q1 of fiscal year 2013, we achieved net revenues of $116.6 million, an increase of 12% from Q4 of fiscal year 2012 and down approximately 5% from Q1 of fiscal year 2012. For the quarter, our non-GAAP gross margin was 58.5% and our non-GAAP diluted earnings per share was $0.27 per share. In Q1, revenue from the communications end market increased sequentially and represented approximately 36% of total revenues. Revenue from the high-end consumer end market increased from the prior quarter and represented 33% of total revenues. Approximately 20% of this revenue was attributable to handheld devices and approximately 13% was attributable to other consumer systems. Revenue from the industrial end market increased and represented 19% of revenues. Revenue from the computing end market also increased from the prior quarter and represented 12% of revenues. The growth in our industrial and computing businesses is mostly attributable to approximately 6 weeks of revenue from Gennum. Excluding Gennum, all end markets, except for computing, increased modestly. Now let me discuss the performance of each of our product groups. In Q1, our protection business grew 4% sequentially and represented 41% of Semtech revenues. While all end markets in protection grew sequentially, we saw particular strength in communications and consumer applications. We expect demand for our protection platforms to continue to grow for the foreseeable future as electronic device manufacturers increase the number of high-performance cores in their systems. In addition, advanced microprocessors continue to transition to next-generation lithography nodes, making them much more susceptible to catastrophic ESP events.…

Jay, can you please poll the audience for questions.

[Operator Instructions] The first question comes from Harsh Kumar of Stephens.

Congratulations on closing the deal. Mohan, it seems like Gennum is on a run rate of roughly $35 million, $36 million a quarter. Do you anticipate keeping all of that revenue? Or are there parts and pieces you will shut down? Can you just comment on that? And I've got a couple of follow-ups.

At this point, Harsh, we have no -- there is no thinking about shutting down any of the revenue -- any of the product lines. The video business is -- looks like it's very healthy business, very -- lots of opportunities in the broadcast side, on the surveillance side and also some emerging spaces within the broader video market. And then I think on the datacom side, obviously, they're a very good fit with what we do, both on the physical media devices and also on the CDR devices. So I think that's very healthy. The IP division is a very, very talented group of people that was under the name of Snowbush. Historically, we also have looked at that -- the people and the capability there, and we believe that, that's going to be a very good asset for the company going forward also. So at this point in time, there's no ideas of divesting anything.

And then, Mohan, you mentioned that communication is starting to come back, you specifically mentioned that optical is looking a little bit healthier now. I'm wondering if you would give us some color between 40-gig orders that you're seeing and the 100-gig orders that you're seeing. In other words, is the one doing better than the other or are both coming back?

They're both coming back. 100 gig is very small today so when we see a small pickup in that, it's nice to see that growing, but that will continue to grow obviously. 40 gig is a little bit larger and a little bit more mature than 100 gig, so that's going to be a little bit more up and down. But in general, I would say we expect core count for both 40 gig and 100 gig to increase on an annual basis. And for sure, we're seeing demand pickup in both 40 gig and 100 gig on a sequential basis here.

Got it. And my last question, and I'll jump back in the queue, are there any intention of taking any steps to increase the gross margin of Gennum products? I know they are very healthy already, but maybe there are steps. And then secondly, when would you start taking steps on the SG&A side? Or maybe you could provide us an update of that.

Well, in the SG&A side, we already have started to take some steps. The Gennum management team has largely been reduced there. We've made some significant changes there. We have started to integrate a large portion of the sales infrastructure and align some of the channel elements there. So I think that's progressing quite well. I think on the gross margin side, I mean, as a company we do that. We don't look at product line and say, "Hey, you have great gross margin" and therefore, we don't need to do anything with it. We continue to look at costs. We continue to look at new products in the area to get higher ASP and things like that. So yes, we will continue. I think there is some opportunity, obviously, clearly with the supply chain integration. There's opportunities to bring down the cost. Some of the philosophies we have in terms of how we attack cost, I think, we can apply to the Gennum business. So yes, we'll continue to look at that.

The next question comes from James Schneider of Goldman Sachs.

This is Gabriela Borges on behalf of Jim. Just a follow up on the comm space. Could you provide some color on trends by geography and any visibility you might have in the trends broadly in the second half of the year?

So by geography, Asia is starting to pick up and I think, Europe also. So those are the 2 where we're seeing the booking strength. Second half of the year, difficult to call, but we are seeing -- our view is that the comm space is starting to pick up quite nicely, specifically in some of the higher bandwidth. There is -- clearly, there is a need for more bandwidth, and then I think that's going to continue to drive some of the infrastructure deployments. So we have seen a pickup both on the long haul side and some of the short reach space as well. So that's -- it's a difficult to call the second half. I would say that we're going in our strongest period here. In general, Q2 and Q3 for Semtech are quite strong periods, and so my expectation is that comm, both Q2 and Q3, will be quite strong.

That's helpful. And then just a follow up, if I may, on the port protection side. Some of the data points we're seeing from the smartphone space has been mixed. What are you hearing from your smartphone customers? And how do you expect your smartphone revenue to trend this quarter relative to normal seasonality?

I think it is a bit mixed. It's not as great as one would've liked as you go into the strongest period of the year. But it is significantly stronger than what we've had in the last couple of quarters. So my expectation is, again, we'll see, as I mentioned, an uptick in Q2 and then some more uptick in Q3. But perhaps not as much as we would like to see it. And that tells you something about the consumer space in general. I think there's been a lack of confidence in the macro environment and things like that. But I think it's going to be okay.

The next question is from Steve Smigie of Raymond James.

I just want to clarify. I think you said that with the Gennum acquisition, there was about $4.6 million of revenue that you would've had if it were not for accounting issues. So I guess if I look at your $116 million change in the quarter, so you would've been north of the $120 million that the Street was at if you'd had the same sort of similar accounting policies. Is that how we should be thinking about that?

Yes, that's correct, Steve.

Okay, great. And then I know you probably won't give us too much going forward. But just because we're in the transition period, can you indicate how much of Gennum is in the revenue for the guided quarter?

Yes, it's about $35 million. So if you take the midpoint of $150 million, $35 million of that is Gennum and the $115 million is our organic business.

Okay, great. And then, just a couple of product updates. Can you talk about timing of revenue ramp for the microwave products or at least give certain milestone color? And similarly, on the Thunderbolt product, can you talk a little bit about your market share and how you see that market evolving? I think Intersil recently was talking about a new product where they think they've got a lower cost out there and think they're going to capture some substantial amounts of shares. So just if you could talk about these theories.

Yes, so microwave, I'm expecting that we will have revenue probably Q4 time frame, maybe Q3. A lot depends on our execution. We have a product that's taken out and sampled. We're going through next -- next rev of silicon on that, and I think that should generate revenue, so Q3, Q4. Once we have initial revenue on that, I expect that to ramp quite nicely. Then on Thunderbolt, we already have revenue there. We already have some nice business there. I think the main thing to remember in Thunderbolt it's still a relatively small market. I mean, it's a very, very small today. A lot of promise about where it could go, and we have, I think, a very good position. Our strength is the performance of our products. We don't claim to be the lowest costs or any of that sort of stuff, but the performance is really quite good, and customers validated that. So I think within an emerging market like this, that is -- now it's going to be mostly about performance. And then later on, we'll figure out how to be play in the consumer space which we know how to do by bringing down the cost. But I think that over the next couple of years, it's more about trying to get the market acceptance of Thunderbolt itself.

The next question comes from the Rick Schafer of Oppenheimer.

This is Shawn Simmons calling in for Rick. Just a couple of questions here. Can you, I guess, just talk about a little bit about your Timing & Sync business? What exactly drives that growth? Is it just -- does it simply scale with data rates over time? Or how should we think about that? And then can you talk about your share in that space?

The Timing & Synchronization business is different than our 40 gig, 100 gig kind of infrastructure business in the sense that it's more about multi-standard base stations, so you try to bring networks together that need IP interfaces. So wherever you have either an existing infrastructure and you want to connect it to an IP network, you would need a base station that does that. And that's when timing synchronization is important, for example. There are other networks -- any IP network will need a timing sync kind of base station as well. And so those are the areas that we play in our timing sync. We tend to be high-performance, high-end player. We don't play in the kind of what I'll call commodity timing area, and we believe we're the leaders in that space and have very good products in that space. I wouldn't want to comment on our share just because I think it's quite fragmented and it's more driven. The majority of our customers that don't use our platform, we believe, have their own internal captive solution they use. So it's difficult to say exactly how much share we have.

Okay. And then just I guess a quick follow-up to that. You guys said that business was down last quarter. Would you expect that the rebound here in the next quarter or in the second half?

Yes, we do expect some rebound probably in the second half. This one is more kind of tied to the overall comm space, I think, whereas with our 40-gig and 100-gig SerDes devices, they're somewhat separate from the rest of the comm space in the sense that the whole comm space may not go -- grow that nicely. But I think our 40-gig and 100-gig devices will still grow. I think the top sync and timing platform is more in line with the rest of the comm space.

Okay, great. And then I guess just switching gears to that 40-gig and 100-gig business. Do you see any other merchant guys out there in the market today sampling 40 gig or 100 gig? And then also, can you quantify how much of the market is captive versus merchant?

We think about -- so you have to separate long haul versus the kind of access short-reach side. We focus mostly on the long haul side. That's where most of our focus is, and we think we have about 70% share there. 30% of the market goes to captive suppliers. So that's kind of the way we look at it. We have maintained that share. We still are doing a pretty good job, I think, with the customers that we've had for quite some time. We're bringing out new products and maintaining that position. And I think both the 40-gig market and the 100-gig market are going to continue to grow nicely, as I mentioned, so there's plenty of room for us.

The next question comes from Ian Ing of Lazard.

First question on some of these 100-gig deployments, what's your exposure to some of these headlines such as Verizon deploying coherent 100 gig, moving that to the metro level? Do you think -- when would you start seeing that? And would AT&T do something similar?

Yes, I think we are exposed to it, and I think it's just a question of timing. With the 100 gig, one has to remember, it's relatively early days. I think there's still -- typically, when you look at the deployments of these core infrastructure systems from our standpoint, first of all, it's a large investment, it's a long time to establish the network and to test the network and qualify all the components of the network, make sure there's no technical issues with all the fiber-related issues that as you go to a higher bandwidth. So those are the challenges of rolling out a new 100-gig network. So we understand when we bring out products into that marketplace, it just takes time. But we will benefit from it for sure.

Okay. So it's a multi-quarter qualification and then deployment, it sounds like?

Yes.

And then could you remind us what sort of content we're looking at in these systems? I mean, obviously, it's a function of the number of PMDs but I guess you have some top sync products on the line card also and maybe just the range of content we should expect.

Yes, it really does vary, Ian. I mean, it's a module that can be anything from a few hundred dollars to a few thousand dollars depending on the type of product and where it's being used and the number of ports and then how many devices they're using. In general, our strategy, of course, is to try to get as many of the ports that are on the line card or on a system to add our timing synchronization to a line card where it's being used, to use our power management and our system wherever we can, to add our protection to every single of the Ethernet ports. And now with the Gennum products, it's to also try to get on the other side, the client side and get our CDRs and PMD devices on all of those ports. That's what our strategy is and that's what we're trying to do. But it's very difficult to tell exactly unless we look at each system. Every single system and every single customer is different.

Great. And then for Emeka, thanks for stepping through those items on Canadian versus U.S. accounting. Is there a way to perhaps summarize, as you move to U.S. accounting, the impact on the prior Gennum operating model? I mean, we've been assuming gross margin in the low 70s, OpEx about 50% more. I mean, anything that sort of moves the needle there?

Well, I think, from what I've said, on the IP revenue moving from revenues to OpEx, so it would have the impact of bringing down the gross margins. Typically, historically, I think, the IP revenue has benefited their gross margins to about 300 basis points. But with regards to the full impact of some of these accounting adjustments, when we file the report with the SEC, which is due in the first week of June, that would have a detailed listing of all the adjustments. The ones that I just went through were the 4 primary ones that I think would affect your modeling.

The next question is from Li-Wen Zhang of Pacific Crest.

First one, last quarter, you mentioned about Thailand impact both on the supply chain and demand side. Would you please give us update on that as well?

Yes, I think from a demand side standpoint, I think that will clear through this quarter. I don't think we can say that there's any more demand-related issues due to the Thailand flood after Q2. On the supply side, there's probably about -- I would say, about $0.5 million to $1 million that might go into Q3. But most of it should be cleared out in Q2.

Okay. And then my next one is, since you have a new manager coming -- came to the board for the power group -- power product group, have you -- would you please give us any details on any changes since he came on to the board and the growth strategies for the future?

Yes, so the new general manager came onboard. He's been with us now, I think, roughly 6 to 9 months. And he really understands the space and understands the market, and I think he has put together a very nice strategy for us. And fundamentally, the difference is going to be, that we're going to go after some higher volume spaces with some more differentiated technology. And I think we should see some revenue growth acceleration there once we start to get those products out. As I mentioned, I think we'll start to see that around Q4 of this year. That's when -- my expectation is we'll start to see the revenue starting to accelerate again.

The next question is from Harsh Kumar of Stephens.

A couple of questions. I think you said, I believe, it's 40% turns needed. Where were the turns in this current quarter that you just reported?

For the quarter that we just reported, Harsh, if you look at the core business, the turns was 42%, which was the same thing that we expected as we came into the quarter.

Okay. Fair enough. And then Mohan, there's a lot of turmoil in Europe, and I'm wondering if you could just maybe take us back in and just talk about any kind of disruptions or order trends that you might point towards Europe's economic conditions. Are you seeing anything special or different from that part of the world?

I would say, yes, it's the first time I've really seen the industrial segment in Europe is very, very soft and unusually, so I think, versus the rest of the world. So that's something to watch out for. For us, it's not a huge amount of that business anyway. But it is something that we look at and say, there is something unusual going on there. But other than that, I think the comm side of it is okay. But that -- a lot of the comm companies maybe shipping into other regions. So I would point to the industrial area is the one that is a concerning area.

There are no further questions at this time. I'd turn the call back over to Mohan Maheswaran.

Let me summarize by saying the Q1 of fiscal year 2013 was a solid quarter for Semtech. The acceleration in our bookings and design wins is a positive indicator that the industry and overall economy are returning to more normal conditions. Semtech's leading portfolio of innovative products targeted at the industries fastest-growing markets positions us to benefit from the resumption of growth, as we enter our seasonally strongest periods. In addition, the successful closing of the Gennum and Cycleo acquisitions enables us to enter exciting new growth areas while providing stability through a more balanced exposure among our end markets. We believe more than ever that now is the right time to be part of the Semtech story. With that, we thank you for continued support of Semtech and look forward to updating you all next quarter. Thank you.

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