Cirrus Logic, Inc. (CRUS) Q3 2022 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by. Welcome to the Cirrus Logic Third Quarter Fiscal Year 2022 Financial Results Q&A Session. After a brief statement, we will open up the call for questions from analysts. Instructions for queuing up will be provided at that time. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the conference over to Mr. Thurman Case, Chief Financial Officer. Mr. Case, you may begin.

Thank you, and good afternoon. Joining me on today’s call is John Forsyth, Cirrus Logic’s Chief Executive Officer; and Chelsea Heffernan, our Vice President of Investor Relations. Today, we announced our financial results for the third quarter fiscal year 2022 at approximately 4:00 p.m. The shareholder letter discussing our financial results, the earnings press release, including a reconciliation of non-GAAP financial information to the most directly comparable GAAP information, along with the webcast of this Q&A session are all available on the Company’s Investor Relations website at investor.cirrus.com. This call will feature questions from the analysts covering our Company as well as questions submitted to us via email at investor.cirrus.com. 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 developments 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 made with the Securities and Exchange Commission for additional discussions of risk factors that could cause actual results to differ materially from current expectations. Now, I’ll turn the call over to John.

Thank you, Thurman. Cirrus Logic reported record revenue of $548.3 million in the December quarter, above the top end of our guidance, driven by significant contributions from increased high-performance mixed-signal content shipping into smartphones and strong overall demand for our products. These results reflect our continued momentum in fiscal year 2022 and mark another milestone in the execution of our strategy to diversify our product and technology portfolio. High-performance mixed-signal products contributed 38% of total revenue in the quarter, with the most significant areas of growth coming from increased shipments of camera controller content and our power conversion and control IC. We were also encouraged by progress in other areas of our business. In fast charging, while we have seen some impacts from the comparative softness in parts of the China smartphone market towards the end of the calendar year, we continue to see OEMs heavily promote fast charging as a differentiating feature. And we taped out two new components during the quarter that are expected to go into production in the first half of the fiscal year. In our audio product lines, design activity for component shipping and flagship and mid-tier Android smartphones was robust, and we are excited about new devices utilizing our products that will be introduced in the first half of the calendar year. We also continued to see positive momentum with audio and laptops. Most of our laptop revenue in the past year has been driven by codec shipments. However, in the December quarter, we also began initial shipments of our first boosted amplifiers in this device category, again, marking great progress by the team towards one of our strategic objectives. Looking forward, we’re excited by the opportunities to expand our addressable market and drive diversification in the coming years through both our audio business and in particular, our high-performance mixed-signal business. With this in mind, today, we are funding strategic developments and new technologies in a range of areas, including sensing, power and battery systems. These investments target both opportunities for incremental content in products where we ship today and opportunities in new applications and markets. While our high-performance mixed-signal product line represents 33% of our year-to-date sales in fiscal year ‘22, we anticipate that this can expand to at least half of our revenue in the future, even as we continue to consolidate and build on our audio leadership. We are very encouraged overall by the traction we are gaining with our high-performance mixed-signal solutions and remain optimistic that there are meaningful opportunities for further growth and product diversification ahead. Before we begin the Q&A, I would like to note, as always, that while we understand there is intense interest related to our largest customer, in accordance with our policy, we do not discuss specifics about our business relationship. Operator, we’re now ready to take questions.

Thank you, sir. Our first question comes from the line of Tore Svanberg from Stifel.

Yes. Thank you. And congratulations on the record results. My first question is on the guidance, which is better than seasonal. You made some references to better ASPs, but is that the main difference, the better ASPs, or are there other things contributing to the above seasonal guidance?

Thank you, Tore. The primary factors behind our guidance and reported results are increases in units and content, along with some price adjustments. However, looking ahead to the March quarter, the guidance primarily reflects robust demand for both our products and those of our customers, which we are striving to meet. When we analyze the March quarter, it does not appear to follow the typical seasonal decline from December to March; instead, it looks quite strong. We are actually bringing in materials for this current quarter wherever possible to satisfy customer demand. Looking further ahead to the June quarter, while we are not providing guidance for June at this moment, we anticipate that the seasonal trend between the March and June quarters will align more with what we typically see between December and March. Ultimately, the key drivers behind our strong guidance and results are the increases in units and content, which we have discussed.

Very good. And as a follow-up, you obviously expect high-performance mixed-signal to continue with a very strong momentum. And you mentioned sensing, power and battery management are the three areas you are continuing to invest in. Just to give us some perspective, what kind of inning are we in as far as those three new product offerings or those two technologies becoming a more material part of the business going forward?

I think the potential is really great. We’re still in the early innings. On the power side, we are in the second quarter of shipping V1, our first power product. And then obviously, we’ve got fast charging products, most of which were really designed before the Lion acquisition was complete, either shipping or coming out, but we have a lot more in both of those areas that we believe we can do. In addition, if we look at the camera controller content, which is also an important contributor to the high-performance mixed-signal. Again, that’s an area where we saw some year-on-year content increase through additional attach rate in the current cycle, but where we anticipate sustained year-on-year growth, both through attach rate and through feature enhancement. And so, when we look at our road maps for whether it’s for sensing, power, battery-related technologies, camera controllers and so on, all the moving pieces in the high-performance mixed-signal space, we have a lot of projects that are either underway or we’ve got slated for the future there.

Our next question comes from the line of Matt Ramsay from Cowen.

I guess, I’m going to ask a couple of questions that are kind of interrelated to kick things off, and they’re around ASPs and gross margin. You guys had taken the gross margin range down a couple of quarters ago and are coming in well above that, which is great to see. So, I guess, for John and for Thurman, how sustainable do you think these margin levels are into the next fiscal year? And I guess, related to that, Tore touched a little bit on this ASP comment that was made in a couple of places in the shareholder letter. One big thematic in semis right now is input costs going up and the ability of companies to pass those input costs on to the customer base. And I think there was an investor assumption that given your concentration with your largest customer, that might be difficult for you guys, but judging from the margins, it looks like that is, in fact, happening. So if you could discuss those two dynamics in relation to the gross margin, that would be helpful. Thank you.

Thank you, Matt, for your kind words. I would describe our gross margin outlook as slightly better compared to my comments from a few quarters ago. However, I advise against making assumptions based solely on the current quarter’s guidance. We’re experiencing some temporary factors, and we anticipate our gross margin to stabilize around 50% as we enter the new fiscal year. That seems to be the right point for modeling. We have implemented some price increases and adjustments across various products, but we’ve also absorbed a significant amount of cost increases over the last year, with additional costs coming into effect at the start of this calendar year. The timing of these changes doesn’t align perfectly. In the March quarter, we will see sales from inventory produced under a lower cost structure, which will temporarily inflate the gross margin, but we expect it to normalize around 50% again. Regarding your broader question on pricing, we have noted in previous calls that rising costs have impacted our business this past year, and we have absorbed as much as we can. Meanwhile, our customers count on us for innovation and value our partnership, so we’ve collaborated closely with them to find solutions. We are still absorbing costs, which is why I mentioned normalizing around 50%, but we feel more confident now than a couple of quarters ago.

Thanks, John, for all the details there. As a follow-up, I appreciate the investments that are being made in the non-audio parts of the business, and that’s going to be a disproportionate piece of growth going forward. I think you guys have been very clear on that. There’s been new opportunities that have come up in non-smartphone markets. You mentioned laptops and a few others. I wondered, John, if you might offer some similar commentary about how you think the growth might be spread for your Company going forward in the smartphone arena versus other verticals. Thanks.

In particular, around the audio area, Matt, are you asking?

Just in general, smartphone growth going forward versus outside?

Yes. Clearly, adding new content in the smartphone market has led to significant revenue increases, which are difficult to achieve in other markets. For now, smartphones will continue to dominate our revenue. However, we are seeing positive developments in other areas, specifically in audio and the high-performance mixed-signal sector. The high-performance mixed-signal area holds potential with our innovative technologies for both charging and discharging around batteries. We aim to use these innovations to explore new product categories, which may not deliver immediate results, but we are excited about the prospects and believe they will help us enter new markets. There are plenty of batteries available for us to apply our innovations. In terms of audio, we have experienced notable growth in the laptop segment over the past year. Last year, our laptop revenue was minimal, only about $5 million, and we weren't actively focused on that. We acknowledged it as a growth area for fiscal year '22, and we anticipate revenue in that segment to be around $40 million. Depending on the PC market's performance, we may not see significant growth in fiscal '23. However, we remain optimistic about the laptop market's content opportunities, particularly in audio codecs, boosted amplifiers, and potential for haptic content, along with power and charging solutions.

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

John, I wanted to revisit Tore’s initial question to ensure I understood it correctly. In the letter, you mentioned March, indicating that the offsetting factors were pricing and the ramp-up of the flagship smartphone. However, it seems your answer focused more on how ongoing demand and the supply chain are catching up. Could you clarify that? Also, I thought you indicated that due to the strength in March, the June sequential results might resemble those of March. Could you restate what you said about June? That would be very helpful.

Yes, thank you, Blayne. In our previous call about the last quarter, there were many unanswered questions regarding demand and seasonality as we approached the March quarter, especially since everyone was aware that products were having difficulty keeping up with demand. From our viewpoint, this guidance indicates that we have clarity. The March quarter appears significantly stronger than usual at this point. This is due to our ongoing efforts to catch up with demand. We are also, whenever possible, bringing in content and materials into the quarter to satisfy customer needs. Looking beyond the March quarter, it seems likely that the transition from March to June will resemble the typical December to March transition, as our numbers and guidance for March are indeed higher than what we generally anticipate.

And then, maybe just a follow-up to that. I was curious, you mentioned some weakness in the Android handset market. Just kind of curious, that was late December. I was curious in outlook for March and June, whether that outlook is any better. And obviously, you have a lot of content talking about some tape-outs, but just some perspective on what you’re seeing for the kind of the non-iOS markets for you for March and June? Thank you.

I don’t have an update on demand for new products that haven't been launched yet. However, we are excited about our upcoming Android products, especially the flagship smartphones set to launch in the first quarter of this year. The indications surrounding those launches are positive, so we feel optimistic about the opportunities ahead. It's important to note that given our coverage of the smartphone market, if we observe any weakness in Android, it often translates into strength for iOS, which is beneficial for our revenues.

Our next question comes from the line of Ruben Roy from WestPark Capital.

John, I want to start just talking about some of the new product areas and the investments that you’re talking about. If we put fast charging in kind of one side and think about some of the other high-performance mixed-signal solutions that you guys have been working on, whether it’s camera controller or power products, how should we think about the investments there? Are you guys looking to broaden sort of a catalog or merchant type of product family around these areas that you’ve mentioned, whether it’s sensing batteries, power, et cetera, or are you still kind of going down the road of sort of custom solutions for specific platforms and customers?

Yes. Thanks, Ruben. You’re absolutely right. Our strategy is kind of three parts. First of all, maintain our leadership in smartphone audio; secondly, broadening sales in audio beyond the smartphone in profitable segments where we can and then; thirdly, expand into adjacent product areas in the high-performance mixed-signal space. So, we talked about battery, sensing, haptics, power, camera controllers as part of that. Our view of that is that it’s going to be a mixture of custom silicon and broader market silicon. That’s certainly our goal. I think over time, you’ll see us build out in both of those areas. And yes, we’re excited about the potential for that to take us into new markets as well as grow incremental content in places where we’re shipping today.

Okay. So, just as a follow-up to that, maybe we can bring Thurman to the discussion, and just kind of thinking about your comments on significant engineering investments, et cetera. You did grow R&D pretty nicely this fiscal year, it looks like based on your guidance. Obviously, we put the Lion Semiconductor acquisition into the model. But, if you could maybe walk us through how to think about sort of these investments that you’re making as they might impact R&D growth as we move forward, that would be helpful.

Starting with the guidance, it has increased. A significant portion of this guidance includes payroll taxes and medical funding, which are specific to the March quarter. Additionally, a good part of it relates to product development. We have noted that product development expenses can fluctuate due to tape-outs and other investments, causing them to vary from quarter to quarter. Therefore, this expenditure isn't tied to a consistent run rate. Looking ahead to Q1, we're not providing specific guidance, but we anticipate that it will be lower than the Q4 results or the March results, and perhaps slightly higher than early in the year, which should give you a rough idea. As for R&D, we will maintain our investment, reallocating resources and adding new ones. You should scale that in relation to revenue, as we have historically discussed. Regarding SG&A, we will continue to manage that carefully, aiming for slight growth or to keep it as close to flat as possible.

Yes. I’d like to add some additional context. Over the past year, we significantly increased our R&D headcount, primarily due to the opportunities in high-performance mixed-signal that we identified. We approach these decisions with careful consideration. When we recognize clear opportunities, we are eager to expand our team accordingly. We continue to enhance our mixed-signal expertise. Additionally, due to our strength in the audio sector and our extensive intellectual property and products, we can also reallocate some of our resources toward new growth areas.

Our next question comes from the line of David Williams from The Benchmark Company.

Congratulations on the quarter, and thank you for allowing me to ask a question. I wanted to inquire about your non-major customer segment and the revenue growth observed. It saw a modest sequential increase, but a significant year-over-year rise. How do you envision modeling that for normalized revenue expectations outside of your core customer base? What growth rates do you anticipate, considering the new platforms and products you have coming online?

Sorry. Can you just clarify your question there, David? Are you asking about growth rate for business outside of our largest customer?

Yes, that’s correct. Just how do you think that can trend over time?

Okay. Well, we’re obviously guiding for March right now. And I’ve tried to give some additional color regarding the June quarter. But, I’m not giving guidance beyond that. However, what I have indicated and what we’ve spoken to in the letter is that we’re really excited about the high-performance mixed-signal space and the opportunities in front of us there. So, some of that is very much targeted on growth of incremental content in places where we ship a lot today, but there’s a reasonable number of opportunities to diversify further in there in our plans and take our products into new markets. So, we’re delighted to grow our business meaningfully, whether that’s with our largest customer or beyond, I think there are opportunities to do both in the coming years. We’re not going to get ahead of ourselves and predict exactly what that’s going to look like, but there’s a lot of reasons to be optimistic about that.

Great. And lastly, can you quantify the supply constraints for the quarter and indicate any specific areas where you're experiencing significant supply issues?

Our guidance always considers the availability of supply. This was true for both the December quarter and our guidance for the March quarter. We could have shipped more if we had secured more wafers during the quarter. This situation primarily affects the areas of our business where we conduct long-range planning. When planning for our largest customers, we invest significant effort in long-range planning and capacity agreements. This process is more related to opportunistic business. There was still some potential revenue we could have captured if we had access to additional wafers. Most in the semiconductor industry have experienced similar challenges over the past year, and demand has remained quite resilient despite these unmet needs. As wafer supply becomes more available, we are hopeful that we can capitalize on some of that demand.

Our next question comes from the line of Christopher Rolland from SIG.

I guess, in the shareholder letter, you guys talked about taping out two new fast-charging parts. I think these are Lion parts or iterations of. And maybe you can talk about how these ones are different? Do they have new features, or is there new process tech, or what’s going on there? And then, just talk about maybe broadening for this product set of fast chargers for Lion outside of just your Chinese customers today. Thanks.

Yes. Thank you. These products focus on higher charging rates. So, the overall competitive driving force in the fast charging market is the charging rate and the amount of power that you’re able to put into the battery and the efficiency of the product. So we have an extremely efficient architecture. We believe it’s class leading. And we have been steadily increasing the charging rates at which we’re able to deliver power into the battery. So, these were the next step in that. There was a point at which 33 watts was considered fast charging. Today, 67 watts fast charging is fairly well established in mainstream smartphones in China. We can see that transitioning higher to 120, 180 watts and beyond over time. So, our product rollout without getting into the minutia of specific products that haven’t been featured in announced devices yet, our devices are focused on driving those charging rates higher. And then, you asked about the opportunity for those products to extend beyond smartphones. That’s a big part of what we’re excited about with the Lion team. So absolutely, today, there’s good business and a lot of customer engagement around the smartphone-focused products. But we believe that, for example, in the laptop space, there’s meaningful opportunities for this charging technology to get a foothold in the coming years and then for us to extend it to other markets for battery-centric devices beyond that.

Thank you, John. The second part of my question was regarding markets beyond China. I also wanted to clarify the guidance you provided. Looking at the last 10 years, March typically sees an average decline of 32%. You mentioned that June could show similar effects. Can you confirm if this seasonality refers to the transition from March to June? We've already noted a 23% decline in March, so are you suggesting that the combined results from March and June might align more closely with the 32% seasonality I mentioned?

Yes. When we discuss this, we are referring specifically to the transition from March to June. We are not combining the strong results we had in December with these figures. We are providing this information to give you an indication of what to expect for the June quarter based on our performance in March and our overall strength.

Our next question comes from the line of Rajvindra Gill Needham & Company.

Thank you and congratulations on the momentum. I want to follow up on the seasonality question. As mentioned earlier, March usually sees a decline of 33% from December. For the March quarter, you're projecting a 23% decrease, which is about 10 points better than the seasonal trend. This suggests that there may be a significant pull-in for the March quarter that could explain the upside, rather than gains from content or units. I would like to understand how we are considering these various elements. I appreciate your insights regarding June, and will we return to more typical patterns in the September and December quarters?

I think one thing is when you look at the December, it’s all-time record revenue for us. And so, it’s coming from a very high base. When you look at what we’ve guided for the March quarter, yes, I realize it’s down 22%. In addition to that, you have to look at the full picture that we’re looking at, which is extremely strong demand in December, continued strong demand through the March quarter. And we’ve kind of given that commentary that regardless of what it looks like between December and March, we are saying that we think it could be more similar. When I’m giving you an exact number, but on average, we know where it was. So I mean that’s basically the commentary.

Got it. Okay. Big picture, it seems like Cirrus aims to increase the dollar content in smartphones beyond just audio, starting with your main customer and eventually expanding into the Android market. While some people are focusing on diversifying away from smartphones, it seems that the top priority is to enhance the dollar content in smartphones beyond audio and then replicate that success in the Android sector. I wanted to explore this further regarding the key technological areas beyond core audio that present opportunities for additional dollar content. Do you have an aspirational goal for the dollar content per phone that you're aiming for?

We certainly see an opportunity to drive content per phone up meaningfully, in particular, driven by the high-performance mixed-signal space. So that has been in our sights from a strategic perspective as an immediate adjacency. So, we’re well established selling into key customers in the smartphone space today. We have great relationships there. We have a reputation for formidable execution, and we’ve long demonstrated that in audio. And now we’ve demonstrated that in high-performance mixed-signal, first with the camera controller content and more recently with the power conversion and control content. So we want to continue expanding that strategy to build out more high-performance mixed-signal content in the phone space and in the process, develop IP and products that we believe can take us into other markets.

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

Congrats on the good execution of the strong results. Two quick ones, if I could. Both from the shareholder letter. Yes. In the letter, you mentioned mixed-signal revenues reaching 50% of revenues at some point. I was wondering if there’s any useful context for us to sort of think about time frame, anything at all with regards to that comment. And then, I have a quick follow-up.

We won't specify an exact timeline, but we have provided the growth rate so you can track our progress over time. Based on the recent performance, it's clear that we're making significant strides, with mixed-signal revenues accounting for about a third of our year-to-date revenue. This marks a substantial increase compared to previous years, and we aim to maintain this momentum. I expect that in the near future, mixed-signal revenues will comprise half of our revenue.

So, that’s super helpful. And then, the other was actually from the shareholder letter as well. It’s more of a clarification question. You talked of share gain in mixed-signal. And I was just wondering if there’s any context you could provide around the share gains.

In the area of share gains in mixed-signal, we increased our camera controller content and replaced some camera control content from other vendors. This raised the overall blended average selling price of our camera control content in the current smartphone cycle. Additionally, we launched our power conversion and control IC. As a result, the camera control content reached a blended average selling price of about $0.70 per device, while we expect the power conversion and control content to be modeled at approximately $1.

Our next question comes from the line of Vivek Arya from BofA Securities.

I had two. The first one, I’m still very confused about the June quarter outlook because if I use that 30%ish or so down sequential, that suggests year-on-year sales would be basically flat or only modestly up, even though you have your Lion contribution in the mix. So, John, how do we reconcile your optimism around unit and content growth with guidance that seemingly, I know June is still some ways out, so things could change. And I realize you tend to be conservative. But am I understanding the trends the right way that you’re essentially guiding to flattish year-on-year sales in June?

Yes, that’s right. I mean, if you look at the midpoint of guidance and you do the calculation. And again, what we’re seeing is a complete shift. This is not reflecting a normal seasonality that is generally a pretty much of a set pattern, although we do see a decrease in the March quarter, it’s from a higher base. And we do, at this point in time, based on our visibility, we’re not trying to give you very specific guidance. We’re trying to give you directional guidance on where on the expectations of a very close March and June quarter in revenue is not what we expect. We expect a significant step down or quite a bit of a step down. And so, I mean, we’re not getting into details and not telling you what’s driving that or not driving it. We’re trying to give some color on where we expect it. By the way, that whatever we’re talking about in that first quarter of next year has no way changed our internal thoughts in terms of what our overall revenue will be for the year.

Understood. And for my follow-up, I just wanted to revisit gross margins. I think you mentioned that gross margins could come back to the 50% or so level. Does that happen from June? Does it happen at a later period? And I think in the past, there was a suggestion that margins could even dip below 50%. Is that no longer the case? So I just wanted to get some views on how we should be thinking about the gross margins for the next several quarters? Thank you.

Yes, we previously talked about some temporary effects on gross margin due to changes in costs and pricing. The gross margin in our guidance for the current quarter is relatively high, and we expect it to stabilize around 50%. This adjustment should occur fairly quickly as the new prices and costs take effect. Compared to earlier guidance suggesting a dip below 50%, our current outlook is more optimistic. Therefore, I believe modeling a 50% margin is a reasonable approach.

We have a follow-up question coming from the line of Tore Svanberg from Stifel.

Yes. Just two quick follow-ups. Thank you. First of all, you mentioned the strategic review in December. And I understand the emphasis on high-performance mixed-signal and how that should drive more sustainable growth and so on and so forth. So, you haven’t really talked about what that means financially. I know in the past, you’ve targeted sort of 20% plus operating margin, but should we think about this strategy potentially driving more operating leverage than that, perhaps getting operating margins as high as what you’re going to do here in the fiscal ‘23 year, which is about 25%?

That’s our longer-term goal, Tore. We believe we have a strong foundation in our current core audio business and significant growth opportunities in high-performance mixed-signal, which is driving a lot of growth this fiscal year. Based on the midpoint of our guidance, we expect around 25% growth for the full fiscal year. We see further opportunities to continue this growth in the coming years, as indicated by our wafer capacity agreements and other factors. Our expectation is that as we increase revenues, we will also enhance leverage from R&D and SG&A, aiming to improve the operating margin over time.

And the last question that I had was you mentioned gaming in the shareholder letter. I think you may have made some reference in the past, too, but what exact content are you getting in gaming applications at this point?

We have to ensure audio and haptic content in gaming devices. The specific gaming product we are focusing on is not public yet, but it is imminent. In both the gaming and AR/VR sectors, we are seeing design wins, although there isn’t a large amount of volume attached to those just yet. However, we are excited about the opportunities those may present for the long term.

Our next question comes from the line of Derek Soderberg from Collier Securities.

I want to start with audio and particularly audio content in handsets. It looks like audio revenue as a whole has been sort of flattish for the first three quarters here compared to last year. It seems like laptops and some other areas are growing nicely. Are some of your handset customers reducing audio content at all? Have you seen any change in audio attach rates in handsets, maybe relative to a year ago?

I don’t think we’ve seen significant changes in attach rates, Derek. We have had to forgo some opportunities due to wafer supply limitations. A considerable portion of our general market business, particularly in audio, has shorter planning cycles. This means there are specific opportunities we haven't been able to pursue, which could have led to additional audio revenue. Therefore, we’ve been selective in choosing areas where we believe we can provide the most value, the most differentiated products, and the greatest benefit to customers within the constraints of the supply environment. As you mentioned, within that audio mix, we’ve continued to perform well in Android, and we’ve also generated substantial revenue over the past year from laptop audio. This is an area where, as I noted earlier with the introduction of boosted amplifiers or the first design-ins of boosted amplifiers for laptops in the December quarter, we see long-term potential to diversify our audio revenues as well.

Got it. And as my follow-up, you just mentioned opportunities in AR, some designs there. I think there’s been some talk around some of those devices coming to market over the next year or so. Wondering how you feel about potential content on those devices for both audio and mixed signal. And I guess, if those devices eventually replace handsets, do you think that these AR wearables would be sort of more or less likely to have additional Cirrus content than handsets? Just trying to frame that opportunity for you guys. Thanks.

Yes. I think we’re very excited about the potential, but very moderate in our expectations over the near and midterm. It’s something that we want to be a part of for the long term where we’ve got customers with exciting visions around AR and VR. So, to date, we’ve been in a number of AR and VR headsets. In most cases, that’s really been where customers have picked up kind of off-the-shelf products. We have more recently developed some dedicated AR and VR content. We anticipate that volumes around those are going to be fairly small to begin with. But I think for the long term, it’s a great area to be a part of.

We have a follow-up question coming from the line of Christopher Rolland from SIG.

Hi, everyone. I want to revisit the June guidance. Thurman, could you clarify the September guidance? I would assume that you expect stronger seasonal performance in September. Is there any reason to believe that the September numbers would be significantly different or lower compared to last year? Thank you.

Oh, you mean September of our next fiscal year? No. I think what we’re saying is that we still feel good about our opportunities to grow revenue as we go into the year. We’re really just making a statement on the June quarter. To keep that in context, we’re not really getting any further out than that. But we are optimistic about our ability to grow revenue. We’re just trying to indicate something that is really unseasonable that we see could affect our results over a couple of periods.

Sure. It just looks like it’s a change in seasonality to your point. And then just another quick follow-up while I have you. The gaming AR/VR content and maybe the pipeline that you guys have, is this around haptics? Is this around amps? Is this around the audio chain? Where are you guys getting the most traction?

I’m not going to comment on anything that’s not released there, Chris, if you understand that. But in the space where products have already been launched, we’ve typically been in the audio domain. I think going forward, we can be more diverse than that.

We have another follow-up coming from the line of Matt Ramsay of Cowen.

The things that I’m getting from investors right now, just to reclarify, still trying to square the circle a little bit with the guidance and the comments, Thurman, that you made that the outlook for the next fiscal year that you guys are planning for haven’t changed. Could you guys just clarify that there’s no new content changes or socket changes that you guys are trying to message that this is just the timing issue on pulling of revenue versus a typical June quarter? Thanks.

This year, we experienced a substantial increase in content that contributed to our revenue. Looking ahead to next year, we will continue to benefit from the content improvements we implemented this year. However, from a product cycle perspective, we do not anticipate another significant increase in content for the upcoming year, which may have an impact on our results. Despite this, we remain confident in our capacity to grow revenue.

Yes, I think I’ll add a bit more general insight. Essentially, we had a much stronger March quarter than usual, which, based on the midpoint of our guidance, suggests we could achieve around 25% growth for the full fiscal year. One factor contributing to the strength of the March quarter is the increased content and revenue. Additionally, some key customers are working diligently to meet the demand for successful products, which has created more pressure to secure all necessary materials during this quarter. We're also making efforts to bring in and expedite more materials from later quarters to help our customers meet demand more effectively. As a result, we anticipate a larger decrease between the March and June quarters than we typically observe because of the relatively strong performance in March.

We have another follow-up coming from the line of Blayne Curtis from Barclays.

I wanted to ask about fiscal '23, especially since we've had many questions on it and the stock has seen a significant drop. John, could you provide your perspective on fiscal '23? There seems to be ongoing discussions regarding June, and while you're confident in your content strategy, I'm struggling to grasp the context. A customer mentioned they're working on catching up and may be launching another low-end phone with better performance, which could positively affect seasonality. I'm trying to understand if you're making estimations for June or if you can share what you see ahead. Can you provide any insights on fiscal '23?

Obviously, we don’t provide guidance out there, but some color might be helpful. I mean, I think in the current fiscal year, our growth is largely being propelled by significant content gains in new strategic areas. Hence, the really significant year-on-year revenue growth. As we look into the immediate coming cycle in fiscal ‘23, I think more of the growth story will be units driven, obviously, with the tailwinds of the second cycle of our new power products kicking in and continued progress on camera controllers. I’ve indicated that we expect to be able to continue to grow the contribution in that space year-over-year over the next few cycles. And then beyond fiscal ‘23, we believe are currently engaged in meaningful new product development that we believe is going to drive further incremental content and growth, and you’ve seen our signals associated with that. So, I think fiscal ‘23 looks strong to us from where we are, and we’ll continue to work on securing all the opportunities to serve our customers and to help them meet the demands that we can for that period.

We have a follow-up question coming from Vivek Arya at BofA Securities.

Just curious, how much is Lion Semi contributing in fiscal ‘22, and how should we think about that contribution in fiscal ‘23?

We’re not breaking out the guidance as we go forward, Vivek. We previously indicated that we expect Lion to contribute in the region of $60 million during the fiscal year between deal close and the end of the fiscal year. The current run rate looks a little soft relative to that, but we’ve got a great deal of customer engagement and opportunity. So, we’ll see how that goes in the end of the year. And then, beyond that, as we go into fiscal ‘23 and beyond, we have a lot of products and a lot of design momentum around the Lion charging products. So, we’re upbeat about that.

And just the last one, OpEx intensity. I know, Thurman, you had given some puts and takes around. Is there a way to think about OpEx in terms of OpEx as a percentage of sales? For example, in the last calendar year, it was just under 28% or so. Is that the right level, or can you be above or below that kind of OpEx intensity going forward?

We believe that operating expenses will become a smaller percentage of revenue over time as our revenue increases. As mentioned, we will continue to invest in research and development as needed. We have already started this process. Additionally, we will be reallocating resources to key projects and managing our expenses accordingly. In the long term, we anticipate that this percentage may decrease, but currently, it remains at that level. We also believe that selling, general, and administrative expenses will be optimized to ensure that this figure becomes a smaller percentage of revenue as well.

There are no further questions at this time. I will now turn the call over back to Ms. Chelsea Heffernan for additional remarks.

Thank you, operator. There are no additional comments. So, I’ll turn the call back to you, John.

Thanks, Chelsea. So, in summary, in the December quarter, Cirrus Logic delivered record revenue, saw a strong design momentum across our portfolio and made significant progress in expanding our high-performance mixed-signal business. Our world-class engineering capabilities and our extensive intellectual property portfolio have enabled us to develop and deliver key new technologies and expand into adjacent product categories, particularly in power conversion, battery management and fast charging. With a consistent track record of execution and a compelling product roadmap, we are excited by the opportunities ahead of us to drive further diversification and growth in the coming years. Before we close, I’d also like to note that we’ll be participating in the Morgan Stanley conference on March 7th. Please see our investor website for the details. If you have any questions that were not addressed today, you can submit them to us via the Ask the CEO section of our investor website. I’d like to thank everyone for participating today. Goodbye.

Thank you again for your participation. This concludes today’s conference call. You may now disconnect.