Good morning. My name is Chuck and I will be your conference operator for today. At this time, I would like to welcome everyone to Silicon Labs’ First Quarter Fiscal 2020 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. After today's presentation there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the call over to Jalene Hoover, Director of Investor Relations and International Finance. Jalene, please go ahead.

Thank you, Chuck, and good morning everyone. Tyson Tuttle, Chief Executive Officer; and John Hollister, Chief Financial Officer, are on today’s call. Tyson will provide a brief introduction before we discuss our financial performance and review our business activities for the first quarter. After our prepared comments, we will take questions. Our earnings press release and the accompanying financial tables are available in the Investor Relations section of our website. This call is also being webcast, and a replay will be available for four weeks. Our comments today will include forward-looking statements subject to risks and uncertainties. We base these forward-looking statements on information available to us as of the date of this conference call and assume no obligation to update these statements in the future. We encourage you to review our SEC filings, which identify important risk factors that could cause actual results to differ materially from those contained in any forward-looking statements. Additionally, during our call today, we will refer to certain non-GAAP financial information. A reconciliation of our GAAP to non-GAAP results is included in the company’s earnings press release and in the Investor Relations section of Silicon Labs’ website. I would now like to turn the call over to Silicon Labs’ Chief Executive Officer, Tyson Tuttle.

Thank you, Jalene. Silicon Labs is a global company with our headquarters and about half our employees based in Austin. We have a substantial global design and sales presence including design centers and sales offices in Europe and Asia. Our international headquarters is in Singapore where we manage our operations and supply chain and engage in design and customer support. As we face the unprecedented COVID-19 pandemic challenge, the health and safety of our employees, customers, partners, and communities remain the top priority. Today, most of our employees working worldwide are working from home under local shelter and place mandates, and some in roles central to the business have onsite access. We are thankful to have the collaboration tools and remote working infrastructure in place to facilitate a relatively smooth transition as our global team advances towards our established goals. We are delighted to announce the close of our acquisition of Redpine Signals connectivity business yesterday, which we first announced in March. I credit the successful acquisition to the hard work of everyone involved, as well as our ability to collaborate on a global basis, even in the face of a challenging environment brought on by the pandemic. I'll talk more about our Redpine acquisition later in the call. In addition to closing Redpine, our global sales team serves as another great example of how we are leveraging technology and tools to maintain increased customer engagement, as evidenced by strong attendance in our new live Tech Talks virtual training sessions. Design activity continues to be robust as we actively engage with customers enabling them to evaluate our products and technologies with easy-to-use development kits and Simplicity Studio software tools. Lastly, to date, we have committed approximately $300,000 to the global COVID-19 response and are continuing to work with community leaders to explore additional opportunities to help. I'll now turn the call over to John to discuss first quarter financial performance and our second quarter outlook. John?

Thanks, Tyson. On March 12, we hosted Silicon Labs' third Analyst Day at our global headquarters in Austin. Our first-ever Virtual Analyst Day attracted more than 250 attendees. It was a great opportunity for our leadership team to provide updates on our strategy and long-term growth potential. If you were not able to join our virtual event, we encourage you to review the presentation and replay which are available in the Investor Relations section of Silicon Labs website. At our Analyst Day event, we announced our decision to revise our external reporting categories from four into two. The two categories are now the Internet of Things, which is unchanged, and infrastructure and automotive, which combines the infrastructure, broadcast, and access product categories into one. That simpler approach reflects the evolution of our business with IoT now representing more than half of revenue, as well as an increased focus on the growth drivers within our primary two reporting categories. Moving on to first quarter financial performance, revenue ended stronger than we expected at $215 million, which was about $10 million above our updated guidance range and up 14% year-on-year. IoT revenue ended at $118 million, down about 8% sequentially and up 11% year-over-year. We saw sequential growth in 32-bit MCUs, Bluetooth, and Z-Wave, with other products down primarily related to softness in China through mid-quarter. Year-over-year IoT revenue growth was led by MCUs, followed by strength in 15.4 wireless products for home automation, security, and lighting applications. Infrastructure and automotive revenue ended at $97 million, exceeding expectations and up 6% sequentially, with infrastructure and broadcast products delivering sequential gains and access down. I&A grew 19% year-on-year, led by strengthened sales of isolation products for industrial, automotive, and solar applications, and ramps in TV and automotive radio tuner programs using our broadcast products. By end market, automotive revenue was up sequentially following a depressed market in 2019. Revenue from consumer was also up for the quarter. Revenue from communications and industrial markets was down. Looking at sequential revenue by geography, results were mixed with first quarter APAC revenue down sharply, whereas revenue in both the Americas and Europe were up. Revenue from our top 10 end customers was 21% of total revenue, consistent with 2019. Revenue from distribution was very strong at 76% of total revenue, up from 74% in Q4. Distribution inventory increased significantly in Q1 with approximately a 20% sequential increase in units, ending within our target range at 54 days in the channel, up from 38 days. Our GAAP gross margin was favorable at 60.4%, based primarily on a strong infrastructure products mix. Non-GAAP operating expenses ended about where we expected, at just over $96 million. Non-GAAP R&D expenses were $55 million, up about $3 million sequentially, and non-GAAP SG&A expenses were $41 million, up about $2 million. The primary drivers behind the OpEx increase are additional salary due to the extra week of the quarter, along with the typical annual entries in first quarter payroll tax expenses, partially offset by lower variable compensation and travel expenses. Non-GAAP operating margin for Q1 was 15.4%, which was up about 50 basis points from the same period in 2019, driven by revenue upside and strong gross margin performance. Our non-GAAP effective tax rate ended at 10%. Non-GAAP earnings per share were $0.69, up 17% from Q1 2019, also above our revised guidance range. On a GAAP basis, first quarter gross margin ended at 60.1%; GAAP operating expenses were $125 million, up about $5 million from Q4 2019, with our R&D expenses at $71 million and SG&A expenses at $54 million for the quarter. Q1 stock compensation expenses were $15 million or about 7% of revenue, and amortization of intangible assets was around $10 million, both as expected. GAAP earnings also ended above revised expectations for the quarter at $0.05 per share. Turning now to the balance sheet. We ended the quarter with cash and investments of $1.1 billion. First quarter cash flow from operations was robust at $60 million, up about 90% from the same period in 2019, resulting from strong collections and effective working capital management. Accounts receivable was down slightly from Q4, ending at $75 million and representing 31 days sales outstanding. Strong shipments in the second half of the quarter drove a $5 million sequential decline in inventory ending at $68 million and representing inventory turns of 5x, which is the upper end of our target range. In Q1, we executed $16 million in our share repurchase program. At last week's Board meeting, we decided to suspend our buyback activity in light of the ongoing coronavirus pandemic. Toward the end of Q1, we drew down $310 million from our bank credit facility to fund the acquisition of Redpine Signals and also out of an abundance of caution given uncertainties surrounding the current environment. Overall, our balance sheet remains very healthy. We continue to be very well-positioned in target markets, and we saw very strong design win activity in Q1 surpassing recent quarters and on track with 2020 goals. Revenue and bookings accelerated in the latter part of the quarter allowing us to exceed revised expectations. While it is difficult to ascertain, we acknowledge that some portion of first-quarter booking strength and upside revenue performance may be due to customer uncertainty regarding the global supply chain. The current macro environment is challenging with the depth and duration of the pandemic-related downturn unknown and impacting our ability to predict our financial performance. We are taking steps to protect profitability including slowing the growth rate of operating expenses by prioritizing hiring, virtually halting travel and participation in events worldwide, and judiciously evaluating discretionary projects and expenditures. Based on these factors, we are expanding our guidance range to reflect increased market volatility and greater uncertainties. We expect near-term pressure on revenue and see more downside risk than upside opportunity in our guidance. I will now cover guidance for the second quarter which includes Redpine Signals connectivity business. We expect Q2 revenue to be in the range of $190 million to $210 million with IoT and infrastructure and automotive down. We expect our non-GAAP gross margins to be 61% and our non-GAAP operating expenses to decline to approximately $92.5 million. We expect our non-GAAP effective tax rate to be 10.5% and non-GAAP earnings per share to be in the range of $0.45 to $0.68. On a GAAP basis, we expect our gross margin to be 60.5%, operating expenses declining to approximately $122 million. We expect GAAP earnings to range between a $0.26 loss to a $0.03 loss per share. As a reminder, these guidance ranges include the acquired Redpine Signals connectivity business. I will now turn the call back over to Tyson.

Thank you, John. First quarter revenue was considerably stronger than expected with sequential growth in infrastructure and automotive products driving the upside. Q1 revenue was up 14% year-on-year. We are pleased to have seen minimal disruption in our supply chain during the COVID-19 pandemic with bookings and revenue strong late in the quarter. We remain in close communication with our global suppliers who continue to report strong demands. Year-to-date design win lifetime revenue and our opportunity funnels were up approximately 10% year-on-year in Q1, highlighting the resilience of our portfolio. Silicon Labs has maintained a fabless model since our inception. This enables us to adjust to the upsides and downsides in demands and ride out challenging economic times without impacting our gross margin, compared to peers with large fixed costs due to internal manufacturing operations. We believe our strategy targeting large, high-quality, and diverse growth drivers in the IoT, communications infrastructure, and electrification combined with the industry-leading technologies we bring to bear will continue to drive long-term growth and improve profitability as we scale our business. Moving on to product category updates, in IoT, we believe the demand for connectivity and intelligence in node products will increase. During our Q1 Analyst Day event, we announced the acquisition of Redpine Signals' Wi-Fi and Bluetooth Business, Development Center in India, and extensive patent portfolio, which closed yesterday. We are very excited about this acquisition, which is highly complementary to our IoT strategy and will expand our leadership in wireless IoT technology. Redpine's low-power Wi-Fi products and intellectual property provide an important technology for IoT connectivity. Wi-Fi 6 or 802.11AX, the latest evolution of the Wi-Fi standard is tailored for IoT application and will become a key wireless technology to meet the low power performance, security and interoperability requirements needed in environments with hundreds to thousands of connected devices. Redpine has been developing Wi-Fi including MIMO and OFDM technologies for the past two decades and has a class-leading solution with a number of important design wins. The integration of these technologies into Silicon Labs' wireless platform will substantially accelerate our roadmap. We expect the addition of the acquired products and technologies into our worldwide sales and distribution network will drive further momentum in smart home, industrial IoT, and commercial markets. The acquisition also includes Bluetooth classic IP for audio applications including wearables, hearables, voice assistants, and smart speakers. In addition to gaining high-quality connectivity technologies, the Redpine acquisition brings a culturally aligned team of about 200 employees in Hyderabad, which is one of the most talent-rich locations in India. As we shift our focus to simplicity and scale in the SLAB portfolio, Silicon Labs' next evolution, we expect to leverage this development site to more efficiently scale our R&D efforts across the board. From silicon and software to the cloud. Fundamentally, simplicity underlines Silicon Labs' values and strategy. From our company culture to how our teams work together in the way we develop products and platforms to drive R&D efficiency, simplicity applies to creating an out-of-the-box experience, collaborating with customers and partners, and scaling SG&A and sales efforts to drive additional growth. Achieving simplicity and scale will drive incremental profitability and growth over time. Device security is gaining the attention of end-users and regulators alike, becoming a must-have foundation to enable the IoT to reach its growth potential. To address this need, during the quarter, we announced Secure Vault technology for our Wireless Gecko Series 2 platform. Secure Vault combines advanced security software features with physically unclonable function hardware technology, delivering the most comprehensive suite of security capabilities for connected IoT products in the market. Providing a combination of hardware and software features, Secure Vault makes it easier for product manufacturers to protect their brands, product designs, and customer data. Integrating security within the wireless SoC helps designers simplify development while making it possible to securely update connected devices over-the-air throughout the product lifecycle. These new security features are ideal for companies working to address emerging regulatory measures such as GDPR in Europe and SB327 in California. Secure Vault provides a number of important features for IoT products including secure key management and storage and advanced tamper protection. Secure device identity addresses post-deployment authentication, one of the biggest challenges for connected devices. Silicon Labs' factory-based trust provisioning service provides a secure device identity certificate during IC manufacturing, analogous to a birth certificate for each individual silicon die, enabling post-deployment security authenticity and attestation-based health checks. The device certificate guarantees the authenticity of the chip for its lifetime. Our wireless stacks leverage Secure Vault's key storage to provide a complete set of configurable detectors and responses protecting encrypted keys against tampering. During the quarter, we announced two families of Wireless Gecko Series 2 system-on-chip devices designed for power and size-constrained IoT products. Our new SoC is a combination of ultra-low transmit receive and deep sleep mode power that delivers exceptional energy efficiency. Additional low power on-chip features such as RF sense, which wakes the SoC in the presence of RF energy, further extend the operating life of battery-powered IoT products. Silicon Labs' new MG22 SoC targets eco-friendly IoT products deployed in 15.4 mesh networks optimized for Zigbee Green Power applications. The MG22 family is an ideal choice for Zigbee devices powered by coin cell batteries or energy harvesting sources. Target applications include smart home sensors, lighting controls, and building and industrial automation. Our new FG22 SoC delivers an optimal combination of features to allow industrial and consumer customers to address proprietary protocols in the 2.54 GHz band, including advanced security, class-leading energy efficiency, and easy-to-use software tools. Target applications include electronic shelf labels, building security automation sensors, and lighting modules. Turning now to Infrastructure and Automotive. We saw robust design win activity for our timing products in Q1. The COVID-19 pandemic underscored the Internet's foundational importance for people and businesses everywhere, driving a substantial increase in the demand for bandwidth. For example, at the end of March, Verizon reported a 25% increase in network traffic since large-scale social distancing measures were first put into place in the US. The critical need for Internet connectivity combined with government stimulus in China will expand demand for communications and optical infrastructure where we are well positioned. We continue to expand our infrastructure and automotive portfolios to address new market and application needs. For example, during the quarter, we introduced a comprehensive power over Ethernet portfolio that reduces the cost and complexity of adding PoE to power sourcing equipment such as enterprise switches and powered devices such as 5G small cells. Our IEEE 802.3bt standard-compliant portfolio more than doubles conventional PoE performance while expanding the capabilities of wireless access points in IoT gateway, hoping to make PoE-powered 5G small cells and digital buildings a practical reality. Supporting both ends of the Ethernet cable from 15 watts to 90 watts, our new PoE portfolio gives developers flexible options for a wide range of applications. Isolation achieved record revenue in Q1 with strengths in sales for industrial, automotive, and solar applications. Our isolation products continue to replace traditional optic couplers and outperform competing digital isolators, enabling superior surge performance, greater reliability, higher integration, and best-in-class safety for system designs requiring protection from high voltages. We have established ourselves as the leading provider of digital isolation technology for the cloud, telecom, solar, and electric vehicle market. Since Silicon Labs' inception, we've delivered on our vision of being a leading provider of silicon software and solutions for a smarter, more connected world. The technologies we are developing are connecting people everywhere, driving supply chain efficiencies, reducing energy consumption, and ultimately making the world a better, safer place. Our focus on this vision permeates our culture and strategy. We believe the COVID-19 pandemic is creating a new reality for how people work and live in an increasingly connected world. We are more certain than ever that we are developing the right technologies and are competing in the right markets, enabling Silicon Labs to exit this pandemic in a stronger position. Thank you for your time and attention. Before we take your questions, I'd like to take a minute to thank Jalene for her many years of service and outstanding contributions to Silicon Labs. I wish her the best in her future career endeavors. I'd also like to welcome George Lane, who will be taking over for Jalene. So, Jalene, now I'd like to turn the call back over to you. Thank you.

Thank you, Tyson. Silicon Labs is a very special place made so in large part by the amazing people throughout that make the company. I'm very proud to have been a part of Silicon Labs' success over the past 17 years and happy to pass the torch to George. Before we open the call for the question-and-answer session, I would like to announce our participation in Cowen's Technology, Media, and Telecom Conference on May 29th and Stifel's Cross-Sector Inside conference on June 8th, both using virtual platforms. We would now like to open the call for your questions. To accommodate as many people as possible before the market opens, we ask that you please limit your questions to one with one follow-up. Chuck?

Our first question will come from Blayne Curtis with Barclay. Please go ahead.

Yes. Thanks for taking my question. Just kind of curious, Tyson, John, just you talked about getting some kind of $5 million shipment seen in the quarter, so it's kind of like things are getting a bit better. You've seen some recovery in China and I think you made the comment that as you look at the guidance which may be more risk of downside and upside. Can you just walk us through how orders have been in April and any perspective on if you're seeing recovery in China? And then, I guess, kind of put the two together that upside at the end of March to your guidance looking forward.

Yes. Blayne, this is John. I'll take a crack at this and then Tyson can add something but bookings have been volatile. We saw pressure clearly through mid-first quarter with the shutdown in China where we saw a lot of companies and suppliers under pressure in China due to the pandemic that began to stabilize later in the quarter. We saw an uptick in bookings to round out the quarter, so we revised our guidance around the time of our Analyst Day event and then ended up outperforming that, given the later strength in the bookings to round out the quarter. There’s uncertainty out there. I guess is the best way to say it, uncertainty and volatility that has us indicating probably a little more risk in the system than has been the case before. But we were pleased to see the upside in the first quarter.

Yes, Blayne, this is Tyson. The volatility is significant right now. There are several customers facing plant shutdowns in various locations, leading to delayed orders, while at the same time, an equal number of customers are accelerating their orders. We see strong recovery in China and are optimistic about the fiscal stimulus, particularly regarding communications infrastructure, which should positively impact the IoT sector as well. There are both delays and increases in orders, but overall, the situation is more volatile than usual. Regarding the US and European economies, we are exercising caution, which is reflected in our booking patterns. While bookings have remained relatively strong as we go through the earnings call in April, this cautious approach is driven by the potential downside risks compared to the upside risks.

Thanks. And maybe a follow-up, you kind of answered part of it Tyson, but in terms of the supply constraints you're talking about, is there any supply constraints that are Silicon Labs related, and then I guess downstream you mentioned autos, I am kind of curious where else do you think about supply constraints that could add to this order visibility and an upside?

Yes. From our perspective, our supply chain is performing very, very well. We are able to meet customer demand and upside within our lead times and are not really seeing major impacts due to anything within our supply chain. So we continue to operate virtually. We've got a work from home posture, and we've been able to transition to that very effectively. What I'm really talking about is that our end customers and then their customers are seeing there are a number of factories for instance automakers in the US and Europe, which have had shutdowns. And you've got some factories that are rolling through these coronavirus related challenges. And so those are having an impact on the ordering path, and there are other customers that are accelerating orders to meet demand. So it's really a mixed bag right now, but overall if you just look at the end markets and what we're looking at here in the US and Europe, we believe that that is going to begin to flow through here at some point not just from the factory closures, but also the decline in consumer demand. And so we are being cautious in our posture both from an OpEx perspective and from a guidance perspective relative to those concerns.

Yes. Just a quick add-on there. You all have seen the news about restrictions in Malaysia and the Philippines. We have very limited production in those regions. We do have some products, but it's fairly small volume. Most of our production is in Taiwan and Taiwan has dealt with the pandemic challenge exceptionally well. So as Tyson said, we're doing well in that area.

Good morning, everyone. I appreciate you taking my question. I want to start by acknowledging that the situation is very dynamic and likely changing weekly for you, which relates to the $20 million guidance range for Q2. Could you provide some additional insights about what distinguishes the high end from the low end of that guidance range, particularly regarding the assumptions about business as we move through the rest of the quarter?

Yes. Gary, this is John. It's really going to depend on how our bookings roll in. I think we see opportunities in communications, and isolation has clearly areas where we have upside opportunity. Automotive is a part of the market that is logically going to be under pressure this year. On the other hand, we have some new platforms that we have been designed into which are beginning to ramp into volume, so that is serving as a countervailing effect on the overall automotive pressure that we believe is likely to materialize later this year. And then just in the broad industrial part of the world, we'll have to see how things play out with businesses opening back up and factories coming back online as a swing factor. And the final point I'll make is China. China has come back strong to round out Q1 and begin Q2 and we'll see how that plays out as well. So those are some of the factors.

Okay. Gary, I would also add on to that we have come into the quarter with solid bookings and our bookings were ahead of where we would typically be during the quarter. I think that's evidence that folks are ordering ahead a little bit—it makes things a little bit hard to predict. And those bookings have remained strong as we've come into the quarter. There's just a lot of churn underneath the covers there in terms of customers pushing out and pulling in. And that's the reason for that expanded guidance range, but where we sit right now, things are looking pretty solid, but given the level of volatility, we felt like we needed to open up that guidance range to give us a little bit of breathing room.

Okay. Thanks for that. I want to move on to gross margin. You are guiding Q2 gross margin at the high end of your long-term guidance range. And I'm just curious to know what's contributed and the single large chunk of that is mix related, but is it at all affected by the acquisition of Redpine? Is it at all impacted by maybe some better cost structures from your supply chain and what not?

Yes. Gary, this is John. So it really is largely mix driven with more communications and industrial mix in the numbers, a bit less consumer mix there. And the Redpine business though not a large factor in Q2, given that it's a partial quarter, but the gross margins from the acquired Redpine business are complimentary with our gross margin profile, so that helps a little bit.

Yes. Thank you, and thank you to Jalene, wishing you all the best. First question is on the Redpine contribution. I think you had talked about this being a $20 million run rate business, so should we assume the contribution is about $5 million then for the June quarter, John?

Yes. Tore, so we've just announced the final closing. We estimate the contribution to be at about half of that level for the partial quarter, so roughly $2 million to $3 million of contribution this quarter.

Great. Thanks. And as my follow-up to Tyson. Tyson, this year is supposed to be the year of Bluetooth for you guys. You had some pretty big announcements at the beginning of the year. Could you just talk a little bit about how the design activity is going there? And what would you expect to gain the most traction with your new Bluetooth products throughout the year? What types of applications?

We are very excited about our new BG22 device that we announced last quarter and we continue to engage in a variety of power, cost and size constrained applications within the Bluetooth market. You've got lots of consumer and industrial and medical applications. Actually, there's a lot of really exciting stuff going on given the pandemic around personal medical and connected devices—basically, these devices connect up to your mobile phone and we are doing this with the device that has just extremely low energy consumption and a very high level of features at a very attractive cost point. So we continue to engage and get kits out into the market and developer tools, and we're holding a number of seminars and virtual training sessions. I would say that the activity there is very, very high. This also the Bluetooth market represents a substantial portion of our funnel. We've got about $3 billion of lifetime revenue opportunity in the funnel and we continue to engage strongly across the globe with these new Bluetooth products, as well as the new MG22 and FG22 that I talked about in the call. So those other products that we developed are also on the 15.4 and some of the proprietary products as well. So we continue to drive innovation on the hardware side and on the software side with Bluetooth being just a great opportunity for share gain and growth in IoT as we go forward.

Good morning guys. Thank you for taking my question. John, I want to go back to the bookings comment. I think you said this distribution inventory went up from 38 days to 54 days. I'm just curious what's your expectation for this quarter? Is distributor inventory whether it's—whether you expect that to go up or stay flattish or come down?

Yes. Srini, this is John. So we did see distributors build some inventory which is good; that is in line with our expectations. We had inventory levels somewhat depressed in the second half of 2019, so where we see them now is normal in the mid-50s on days. We expect it to hold there. Of course, the absolute amount will depend on the underlying commercial activity, but mid-50s is a reasonable range and that is where we expect that to hold.

Yes. Srini, the infrastructure and automotive business in particular around isolation and communications is doing very well right now. The communications infrastructure part, the timing parts, we've had a multi-year effort to engage with the telecommunications equipment providers. We are designed into four out of the top five including the top two in China with our clock and oscillator products. And that includes into the new 5G base station. So there's a good attach rate to those in content per base station in that business, just China-specific in terms of the stimulus and is going to drive demand. I also think that if you just look internet demand around the world as core networks are upgraded and data centers are upgraded, all the connectivity where we have a lot of historical strengths is going to continue to bode well for our timing products. So we saw year-over-year strengths. We've had very good design win attraction, but the devices that are out there in production today, we've got very good share. So I'm bullish on the communication market. In terms of isolation, we had a record quarter in Q1, and that was really driven by strength across the board, and isolation is a very broad product line for us in terms of the number of different applications and the number of customers. There's a lot of industrial for motors and power supplies and monitoring and just a whole bunch of different applications within industrial. You certainly have electric vehicles, and I think that within the automotive market, electric vehicles are leading share there and penetration with the leading providers. Longer-term, although we see potentially the automotive markets slowing a bit, overall I think that electric vehicles are going to be a very important driver for isolation growth going forward given our content that we have in each car. And then you've got things in green energy applications like solar and wind and a lot of things. Anytime you're connecting to the electric grid, you need isolation and that's where these products come in and we have a number of innovative features around that. And we also have a good position in isolation with data center power supplies. So within data centers, the power system is one of the critical areas, and within isolation, we have a particularly strong business in that. So it was kind of across the board on isolation. Those sets of applications, I think, net-net are going to benefit from some of the longer-term trends that we're seeing due to the COVID-19.

Yes. Thank you, and congratulations on good momentum in this tough environment. Tyson, just regarding the IoT traction that you're seeing, do you see any risk regarding installation of home automation equipment or smart lighting systems or smart energy systems because of COVID, because of the situation regarding the infectiousness of the disease? Is that slowing down any of the installation in this type of equipment using your chips?

Yes, it's a bit of a blend. In the home automation sector, we have various customers in the US, particularly related to our Z-Wave and Zigbee products. Operators and security installers are integrating our devices into home automation and security systems, but their access to homes is being affected. Additionally, there's a strong retail channel and a do-it-yourself market, with many people at home looking for projects, leading to increased online orders. However, some retail stores may experience a decline. In the home automation space, we have both consumer and industrial installer segments, and both will experience some effects moving forward. This is primarily in the US and Europe, while in China, we observe heightened engagement in design win activities and demand for our IoT and connectivity products. Therefore, there will be various factors at play as we move ahead. I'm also very enthusiastic about the Redpine Signals acquisition, which adds Bluetooth technology and enhances our home automation capabilities, leading to longer-term growth opportunities. Overall, I'm optimistic about the deployment of these technologies and our competitive advantage in the market.

Next question for me, Tyson, you talked about volatility around a number of your customers. Some are pushing out orders; some that are pulling in orders. Can you elaborate further in terms of what end market you're seeing that? And what's the nature of the decision making?

Yes. Raj, it's not really isolated to a particular part of the business. We've seen this affecting industrial customers. We've seen it affecting automotive customers. I will say communications appears more steadily strong in contrast, and on the consumer side durable goods are likely under some additional pressure as well looking ahead, but it's spotty and then not really isolated to a particular area. I can give you an example of something that is influencing our operations. We have several customers in the portable medical sector supplying parts for ventilators, thermometers, and other connected devices that involve microcontrollers and sensors. We have prioritized shipments and support for these customers to expedite activities in this area due to the increased urgency. Conversely, if a factory shuts down and no parts are needed, those shipments are delayed, as seen in the automotive sector with some of our customers. There is definitely a mix of circumstances that will evolve over time, contributing to an overall increase in volatility.

Thank you very much. Good morning. John, you guided OpEx for June, and you've consistently managed costs well. Could you confirm how much of the OpEx is additional due to the acquisition? Also, it would be helpful to understand your strategy for managing OpEx during the later half of the year, considering all the variations in demand. Thanks.

Yes. Matt, sure. So the OpEx incremental for the balance of Q2 is approximately $2 million, and that's for a partial quarter. Back in the January call, we talked about a 6% estimate for the year associated with the acquisition, and that was on an organic basis. With the acquisition that would naturally come up. We are taking steps to control costs in light of everything that's going on. Our objective at this point would be to hold the prior view of approximately 6% increase including the acquisition, maybe a little north of that, but we'll have to see how it plays out as well. It's going to be dynamic as we watch bookings and profitability through the course of this year, but that's about the best view I can give you right now.

Matt, I'd also just add to that we talked about our manufacturing model where we've got our gross margins hold because we're a fabless company and so we don't have the fixed costs on our manufacturing. We also have a variable cost model on our OpEx. So the bonuses and a number of things to the extent that we would get a downside hit would naturally push the OpEx levels down over time. So we're—in those comments we're not assuming that things would go down, but I think that we are very well prepared both in terms of our posture, the actions that we're taking and the variable costs and structure in the variable OpEx structure that we have as a company to be able to weather a downturn situation. I would also mention, we don't, from our debt situation we are in good shape in terms of our balance sheet. We don't have a huge debt load, and John maybe you want to make a few comments on that, but from a capital standpoint, we also feel like we have a very robust situation.

Sure. On a gross debt basis, we are about 3.5x levered now with the credit facility drawn. We have ample cash to fund now. We're just monitoring conditions around the optimal time to repay that, and then of course the convertible bonds are outstanding with about a two-year horizon on those. So we feel comfortable with the level of leverage even in a downside scenario. We have done some scenario analysis to plan for contingencies around that.

Got it, guys. Thanks for the color there. Just as a follow-up sort of bigger picture question, Tyson. I mean you talked extensively on this call about some pull-ins of orders and maybe some push outs of orders depending on different customers and the really near-term, but as you talk within the customer base about engagements on long-term IoT programs around things like efficiencies and automation, et cetera, are those conversations sort of tempered given what may come in the economy over the next four, five, six quarters or whatever it is, or is the momentum to getting efficiencies out of IoT deployments, are those accelerating? It’s kind of an interesting balance, and just love to hear some high-level thoughts there.

Yes. Matt, thank you for that. The amount of activity that we have and I would say in particular around IoT has gone up dramatically in terms of the engagement of customers, and we have Tech Talks that we're doing virtually. We've got record numbers of people that are attending these. We're supporting customers virtually, and it seems that the pace of excitement and adoption of these IoT technologies, whether it's for improving supply chain, gone up. But we're living in a more connected world now. There is a new reality that is accelerating the pace of changes due to technology in our economies and our companies in our lives; you've got people working from home. Not everybody is going to go back to the office. We're hosting our earnings call here remotely. We are going to have to monitor and sense things and connect things up, and so that I think that both within the company I think there's a tremendous amount of focus and drive to get these technologies implemented, and to accelerate our product developments. But I also think that within our customer base, the level of activity that we have in terms of being able to get these products out to market, getting them designed in; moving to the next generation technologies and pushing the envelope. I think that that's going to continue and accelerate. And that's what we are just laser-focused on in terms of our IoT products, very excited about being able to get the Redpine team and those products under the portfolio. But you look at our position in home automation with Bluetooth, with Z-Wave, with Zigbee and in the broader industrial space, and I think overall we see an increased level of customer engagement, and that's specifically referring to your kind of long-term big picture, is this going to be a more important part of the semiconductor industry and a more important part of the economy longer term and I think the answer is unequivocally yes.

This concludes our question-and-answer session. I'd now like to hand the call back over to Jalene Hoover. Please go ahead.

Unfortunately, I think I might be muted.

I think she may be muted. I am going to thank everybody for the call today. And this concludes today's call. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.